Bitcoin’s Roller Coaster Ride to Nowhere

By David S. Evans on October 7, 2014

This post originally appeared in

The Bitcoin exchange rate gets a lot of attention. Look at all the stories today over the fact that the exchange rate dipped below $300 on October 5, 2014 for the first time in 11 months, reaching $288.82 and down $869.51 from its all time high of $1158.33 on December 4, 2013.  Most people have missed the really big story. Despite all the hoopla, all the talk about Bitcoin going mainstream, all the merchants spinning their PR machines to show how with-it they are taking this cutting edge currency, and all the VC dollars thrown at Bitcoin start-ups: Bitcoin is sputtering like an tired old jalopy. Daily transaction volume has been flat for a year or more.

Let us be specific. Successful platform businesses like payments have exponential growth in their early years. We don’t know of any exceptions. They have driven by positive feedback effects. If more people/businesses want to use a payment method more people/businesses will take it, which leads more people/businesses to want to use it and so forth. Not for Bitcoin. Almost six years after its start transaction activity is just about as flat as can be.

So here is the story of Bitcoin in two slides.


Source: Calculations by Market Platform Dynamics based Blockchain for prices and Number of transactions. Available at: Monetary Statistics, Blockchain Info,


Source: Calculations by Market Platform Dynamics based on Blockchain for prices and for volatility index. Available at: Monetary Statistics, Blockchain Info, Data of volatility index was provided by


The first one shows the Bitcoin roller coaster of prices which shows wild swings in prices but an overall stunning decline since December 4, 2013. It also shows the flat-line of transactions. If that were an electrocardiogram Bitcoin would be pronounced dead.

The second one shows the Bitcoin roller coaster of prices against our volatility index which shows how volatile Bitcoin is relative to the Euro. It has ranged from 7.7 times more volatile to 66.5 times more volatile than the Euro over the last year (based on monthly volatility).

Who would want to transact with this kind of crazy currency? Well, there you have an explanation for the first graph. Despite all the deceptive press merchants are not increasing their acceptance of Bitcoin”no responsible business would. The Bitcoin wallet folks are selling this bizarre service where people buy Bitcoins with dollars (or other fiat currencies) and then the wallet folks swap them back into dollars (or other fiat currencies) for the merchant. Huh? So the merchants aren’t helping with the positive feedback effects. Meanwhile, people have lots of reasons not to pay with bitcoins using these wallets. They have to pay for swapping their dollars for bitcoins.  Then, as we know now, they face the rapid currency depreciation if they don’t spend the bitcoins fast enough. Someone who put $100 in a Bitcoin wallet on September 28, and didn’t spend it, would have lost $19.43 by October 5. (based on the closing prices on those days.)

If you want to figure out whether to bet on Bitcoin you should look at transactions. The longer they stagnate the more you can be certain that predictions about the inevitability of Bitcoin, and its $10,000, $1 million, or whatever valuation, was delusional.

This column was co-authored with Alexis Pirchio who is a Consultant at Market Platform Dynamics, based in Buenos Aires.

About the Author

David S. Evans
Chairman, Boston
(617) 320-8933
Antitrust/Competition Policy; Labor and Discrimination; Financial Regulation