There is a Bitcoin bubble, just not the one you think

The idea of monetary currency is a funny thing when you sit and think about it. A twenty dollar bill in your pocket only has twenty dollars worth of purchasing power because enough people have agreed that it does. Yet, there is nothing intrinsically valuable about the paper you hold and the number that is printed on it.

Enter the bitcoin. The controversial digital currency is (literally) of no value in the real world, unless enough people agree that it should be worth something. In that case, the value becomes real, and you can make actual purchases with it. And Bitcoin, like any currency, has its perceived valuation ebb and flow from time to time. This happens every time it hits the news for good or bad reasons.

The ups and downs of the Bitcoin value has led some to suggest that it is a speculative bubble, and others to comment that it is a bubble altogether. Yet the fact remains that with every passing day, more and more companies are starting to accept Bitcoin, cementing the necessary buy-in that makes the perceived value of the currency real. Recently web marketplace giants Overstock.com and TigerDirect.com announced that they would start accepting Bitcoin.

Previous to these large businesses drinking the punch, a micro-economy of Bitcoin accepting companies has been flourishing in what has up to now been a niche market. Since most large corporations still don’t accept Bitcoin, websites like CoinGig.com offer spaces where users can purchase just about anything with them.

“PayPal is going down, not many people use it anymore,” said Kenneth Metral, Co-founder of CoinGig, referring to the preferred payment method of sites like Amazon and EBay. “Using Bitcoin, it takes out the middle man and there [are] no banks involved … So [Bitcoin] is ultimately the future of payments.”

Metral estimates that in December 2013, his site saw transactions equal to $80,000. Unlike notorious Bitcoin-driven site Silk Road, CoinGig makes sure that its offerings are 100% legal, he said. Most of his business, he added, comes from overseas. Not bad for a start-up.

But what happens when the Amazons and Ebays of the world start to accept Bitcoin? Currently, the only leg up on competition start-ups like CoinGig have is the fact that they accept Bitcoin. Once the big boys start accepting it as well, their competitive advantage goes right out the window, and their business model becomes obsolete. It’s these first first adapters that are, in effect, in the “bubble,” and they will have to find new competitive advantages before that bubble bursts.

Ironically, the businesses that were the first to exploit the niche Bitcoin market and help make the currency popular will be the first to feel the pinch when large retailers hop on the bandwagon. The moment the Amazons of the world accept Bitcoin, it will be the moment where we know for certain that controversial cryptocurrency isn’t going anywhere at all.

Daniel Rivero is a producer/reporter for Fusion who focuses on police and justice issues. He also skateboards, does a bunch of arts related things on his off time, and likes Cuban coffee.