Bitcoin Q2 2015 report: Prices recover amid economic turmoil

CoinDesk has released its latest quarterly Bitcoin Report, which focuses on events in the cryptocurrency world during the second quarter of 2015.

The report has a total of 99 slides. This article is some of the highlights of the report. Interested friends can visit the original text for viewing.

Why is the report still titled “The State of Bitcoin”?

Since its inception, CoinDesk’s “State of Bitcoin” report has included data on altcoins and other non-Bitcoin topics (such as the Ripple protocol).

There were a number of developments that didn’t happen with Bitcoin during this quarter, including the emergence of various competing chains and ‘private blockchains’.

However, according to the Q2 2015 report, Bitcoin and its blockchain remain the most important, so it is reasonable to title the report "The State of Bitcoin" for analyzing the overall development trends of the entire cryptocurrency industry.

Prices have increased compared to the first quarter

In the second quarter report, we saw that the price of Bitcoin has been recovering over the past few weeks, ending a 12-month decline at the end of June on a quarterly basis.

Figure 1: CoinDesk Bitcoin Price Index – Last Twelve Months

Many people are speculating why the price of Bitcoin rose by 8% in the second quarter and why it rose by another 5% in the third quarter (Figure 2). The main focus is on the macroeconomic and financial problems in Greece and China.

Figure 2: CoinDesk Bitcoin Price Index – Past Three Months

As for Greece, to some extent, the country’s interest in Bitcoin is indeed growing, but for a number of reasons, we believe that the impact of this Greek crisis on Bitcoin comes more from observers than from the Greeks themselves.

In contrast, the exchange rates of Chinese exchanges show a significant difference with those of exchanges in other countries, which suggests that the rise in Bitcoin prices is driven by the Chinese, which may be related to the instability of the financial market.

On the other hand, the Chinese government’s crackdown on financial markets appears to have eased the stock market’s free fall, but according to predictions by China watcher Michael Pettis and others, these measures could lead to further financial market instability, prompting Chinese players to return their funds to the cryptocurrency market.

Furthermore, while Bitcoin’s price rebounded in late June, the second quarter was still one of the least volatile quarters in Bitcoin’s history. Whether this lower volatility represents progress, a problem, or a combination of both is a topic worth discussing.

Figure 3 Bitcoin price in the second quarter

Banks, Governments, and Blockchain

Many large financial institutions have been researching Bitcoin and related technologies. In the second quarter, several large institutions announced various blockchain experiments or invested in blockchain technology and related companies.

In one notable example, Nasdaq announced a blockchain-based solution for managing private share trading, which was previously done through a cumbersome manual process.

Although the word "Bitcoin" was not prominently included in Nasdaq's announcement, in fact, Nasdaq is using the Bitcoin blockchain.

In addition, seven banks from around the world have established partnerships with Ripple Laps, including three of the four largest banks in Australia. According to a recent report released by the European Banking Association (EBA), the reason why blockchain technology is so popular among traditional financial services companies is mainly due to its ability to reduce costs and improve transaction efficiency.

Two governments announced the launch of government blockchains this quarter. The Isle of Man is running its first government blockchain project to create a record book for digital currency companies on the Isle of Man. In addition, the Honduran government previously announced a partnership with distributed ledger startup Factom to create a new blockchain-based land title record system.

Overall, the second quarter heralded the arrival of the blockchain era, as a technology platform is emerging from the shadow of Bitcoin's monetary attributes.

VC investment remains strong, but concerns are emerging

In the second quarter, total venture capital investment in the digital currency sector increased by 21% to $832 million. The two largest rounds of financing in this quarter came from Circle's $50 million and Ripple Laps' $28 million. CoinDesk continues to predict that venture capital investment in the digital currency sector in 2015 will exceed the venture capital investment in the Internet in 1996.

However, the increasing competition in the Bitcoin ecosystem has led to more and more startups being acquired or going bankrupt, especially exchanges and mining companies that face greater cost and competitive pressures.

In addition, the collapse of Bitcoin startup Buttercoin (Google, which has deep pockets, was one of the company's investors) also sounded the alarm for venture capitalists.

Bitcoin e-commerce is still lagging behind

The growth rate of new merchants accepting Bitcoin is still lagging behind compared to previous quarters.

The most fundamental challenge for Bitcoin as a medium of exchange (referring to legal transactions) is the lack of a compelling reason for mainstream consumers to use Bitcoin. In the short term, CoinDesk expects that many businesses that initially focused on processing Bitcoin payments will either shift their business focus, merge, or close.

“I only spend Bitcoin when I use it”

One of the reasons people haven’t adopted Bitcoin as a medium of exchange is that few people use it for payments. But that may be changing.

21 Inc, the bitcoin startup that received the most venture capital funding in the second quarter, revealed plans for its BitShare mining chip, which it said would be integrated into a variety of consumer electronic devices.

So what does this BitShare chip do? In the words of 21st Century CEO Balaji Srinivasan, it "generates digital currency continuously and in small quantities for a wide range of applications."

In other words, after embedding this mining equipment, users can automatically and regularly use Bitcoin for payment, just as many people's wages are deposited into their bank accounts every two weeks.

Overall, there are a lot of well-known issues with embedded mining chips, and even if the technology and economics are sound, it may still take quite some time for such devices to become widely used. However, if such embedded mining chips can be widely adopted, it could be a game-changer for Bitcoin as a medium of exchange.

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