BitInstant Bust Tests Bitcoin’s Newfound Stability

On January 27 the CEO of the bitcoin pay service BitInstant was indicted on money laundering charges, with the Justice Department alleging he knowingly hid some $1 million in bitcoins in violation of the Banking Secrecy Act. Unlike most negative news that traditionally has affected the price of the currency, bitcoin’s value did not plunge significantly, giving credence to the assertion that the notoriously volatile cryptocurrency is nearing relative stability – at least for time being.

In October the bitcoin plunged sharply after the federal seizure of popular deep-web exchange Silk Road sent speculators scurrying to cash out. After an ensuing meteoric rise, possibly fueled by the media attention, bitcoin’s price was once again checked in December by government intervention – in this case Chinese monetary officials banning the trading of the alternative currency within its borders.

While the indictment of BitInstant’s Charlie Shrem is now on the magnitude of the Silk Road seizure or the Chinese government’s clampdown, the lack of price movement following this incident supports the notion that bitcoin’s current price point is near its “correct” value. And with a more-or-less agreed upon price point, the nascent currency could gain necessary liquidity and fight off speculative binges that could permanently tank the digital wealth storage vehicle.     

Since swinging between approximately $570 and $1175 BTC from mid November until the end of 2013, bitcoin has found a comparatively stable home in the $750-$900 price range. While this sort of spread is still quite unusually large when compared to more stable currencies and commodities, it does suggest bitcoin is approaching a more or less agreed-upon value on the free market.

Of course, the last time bitcoin maintained a relatively steady valuation was from May 2013 until October, when BTC held between $90 and $130. Whether the current range suggests another plateau or not remains as uncertain as the anonymous currency’s stakeholders.

But the rapid adoption of businesses seeking to use bitcoin as a currency as opposed to a speculative commodity, alongside the lack of a panic following the BitInstant indictments does bode well for its resiliency. As bitcoin develops, it is sure to face more setbacks and wild price fluctuations. The minimization of this whipsaw action could bode well for further widespread adoption.

January 27 saw BTC trading for $766.66 midday on the Coinbase exchange.