Volatility Can Take All The Fun Out Of Spending Bitcoin
Now, finally, comes the fun part: spending it.
Less than a year ago Bitcoin was a cryptocurrency with a shady reputation. Today, there’s a surprising amount of stuff you can buy with it — everything from accent tables at Overstock.com to 100 percent Bamboo socks.
Thanks to Coinmap, I know in Northern Colorado that you can get everything from veterinary services to a cup of coffee, or even a custom wine blend.
We have a winner.
It actually took me longer to pick out my wine blend then to make my purchase at Vintages in Fort Collins. It turns out speed is a factor with virtual money right now.
On that Friday in the wine shop my .02483 Bitcoin was worth $17.95. By the following Monday MtGox identified a glitch in the virtual currency’s software and the value of Bitcoin dropped 20 percent.
Had I waited, I wouldn't have been able to afford my bottle of Ampelio.
It underscores a key issue with Bitcoin as a currency: volatility. In 2013, one Bitcoin was worth as little as $13. Then the value shot up more than $1,000. As of Feb. 13, one is worth about $600 — even that could change by the time you read this.
“Currencies do fluctuate in value over time,” said John Elder, professor of finance at Colorado State University. "Usually that fluctuation is not that great.”
Elder points out one thing about currencies that we take for granted: they’re pretty reliable at storing value. Bitcoin isn’t very good at this right now, something the Bitcoin Foundation even points out.
“With Bitcoin that issue of how it’s going to function as a store of value is just really much more speculative,” said Elder. When he says “speculative,” he means it’s a gamble. Ultimately the value is determined by willingness of people to accept Bitcoin in transactions.
"… and that willingness may disappear quite significantly overnight if people think that other people aren’t going to take it,” said Elder.
Opinions vary widely on the future of Bitcoin. Some think the value represents a bubble about to burst. Others continue to invest in it despite the volatility.
As for me, I narrowly escaped losing 20 percent of my Bitcoin. Now that’s worth toasting.