State of Bitcoin Q2 2014 Report Reveals Expanding Bitcoin Economy

In April we announced that CoinDesk would be publishing State of Bitcoin updates on a quarterly basis. Given the positive response we have received since 2014’s first report, we are pleased to release our latest update.

This State of Bitcoin Q2 report focuses on data and events in the second quarter of 2014 through to the present day. Here are some of the highlights.

2014 Q2 report highlights

Bitcoin’s price continues to be a key focus.

Some people, including Stanford Professor Susan Athey, have argued that there has been too much emphasis placed on bitcoin’s price. However, looking at the top 10 most read stories on CoinDesk during the second quarter, we see four are about bitcoin price action (Figure 1).

Figure 1: Top-10 Most Read CoinDesk Stories in Q2 2014

Another top-10 story regarding Mark T Williams’ failed prediction of a bitcoin price collapse in Q2 is also arguably price-related. In short, there continues to be very high interest in bitcoin’s price.

Bitcoin’s price bounces back 39%

One of the reasons bitcoin’s price was such a big topic in Q2 is because it witnessed a significant recovery, rising 39.4% during the second quarter.

A number of factors explain bitcoin’s price rebound in the second quarter, including what appears to be a stabilizing regulatory situation in China as well as continued interest in bitcoin by large, well-established brands such as DISH, Expedia, and Apple (Figure 2).

Figure 2: Significant Bitcoin Events and Price Response in Q2

It’s important to note that bitcoin’s price at the end of Q2 is still 15% below where it started in 2014 and 33% below its 2014 high on 6th January, when it reached $951.39 on the CoinDesk Bitcoin Price Index (BPI).

VC investments in bitcoin increased by 28%

While Q1 was very positive for bitcoin in terms of venture capital (with $57m invested), the second quarter saw $73m invested – a 28% increase over Q1 (Figure 3).

Figure 3: Bitcoin Venture Capital Investment Summary

If we include the early Q3 2014 VC investments we’ve seen (notably Xapo’s recent $20m round), a total of $240m has been invested in bitcoin startups since 2012, and $150m (63%) has come in 2014 YTD alone.

Our 2014 bitcoin VC investment forecast increased by 42%

One of the more widely discussed elements of the Q1 State of Bitcoin report was our comparison of investment in early Internet and early bitcoin startups.

VCs such as Marc Andreessen have compared bitcoin’s overall potential, as well as its current stage of development, to the Internet circa 1993. Our comparison was meant to assess whether VCs are backing up their lofty bitcoin statements with their wallets.

Notwithstanding a number of methodological issues which we discussed previously with making this comparison – including inflation and changes over time in the cost of launching a startup – we feel the comparison is still interesting and useful.

In April we were projecting a total of $200m invested in bitcoin startups for 2014. While close, this figure still trailed 1995 early-stage Internet investment by a significant margin. However, based on recent investments, including the aforementioned $20m Xapo round, we are now projecting a total of $284.5m to be invested in bitcoin startups this year.

This figure would comfortably exceed the $250m invested in first sequence Internet startups in 1995 (Chart 1).

Chart 1: Bitcoin vs Early Internet VC Investment ($s millions)

The 2014 run rate for publicly-disclosed VC investment in bitcoin startups would also be over 3 times more than the total investment VCs made in bitcoin startups in 2013.

In short, the ‘wall of money’ flowing towards cryptocurrency startups continues to grow and will continue to have a positive impact on the industry’s prospects.

We forecast 8 million wallets, 100,000 bitcoin merchants in 2014

We have been working on expanding our database of key bitcoin data so that we can more closely monitor bitcoin’s progress and make forecasts on key adoption metrics, such as wallet use and merchant acceptance.

So that you can have a quick, one-page dashboard that measures bitcoin’s progress, we are introducing our Key Bitcoin Adoption Metrics (Figure 4).

Figure 4: Key Bitcoin Adoption Metrics

For the first time, we are also making year-end forecasts for the total number of bitcoin wallets (Figure 5) and the total number of bitcoin-accepting businesses (Figure 6).

Figure 5: Bitcoin Wallets – Total Current and Forecasted 2014 Year End

Figure 6: Bitcoin Accepting Merchants – Total Current and Forecasted 2014 Year End

Why not come back in two quarters to see how we’ve done with these forecasts?

In the meantime, we hope you enjoy the State of Bitcoin Q2 2014 report. We’d like to thank you, our readers, for making CoinDesk the world’s leading source of bitcoin news, analysis and perspective, and we very much welcome your feedback on how we can make the State of Bitcoin even better.