Report on the state of Bitcoin in the second quarter of 2014 shows the expansion of the Bitcoin economy

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In April we announced that CoinDesk would publish quarterly updates on the status of Bitcoin. Given the positive feedback we’ve received since 2014In the first report we are pleased to be able to publish our latest update.

This Q2 report on the status of Bitcoin focuses on dates and events from the second quarter of 2014 through today. Here are some of the highlights.

Highlights of the second quarter of 2014

Bitcoin’s price continues to take center stage.

Some people, including Stanford Professor Susan Athey, have argued that the price of Bitcoin has been over-emphasized. However, if we look at the top 10 most-read articles on CoinDesk in the second quarter, we see that four are about Bitcoin price promotions (Slide 5).

Slide 5: Top 10 Most Read CoinDesk Stories in Q2 2014

Another top 10 story related to Mark T Williams’ failed prediction of a Bitcoin price drop in the second quarter is arguably price related as well. In short, interest in the Bitcoin price remains very high.

Bitcoin’s price is recovering 39%.

One of the reasons Bitcoin price was such a big topic in the second quarter is because of the sharp recovery, which rose 39.4% in the second quarter.

A number of factors explain Bitcoin’s price rally in the second quarter, including what appears to be a stabilizing regulatory situation in China, as well as continued interest in Bitcoin by large, established brands such as DISH, Expedia, and Apple (Slide 7).

Major Bitcoin events and price reactions in the second quarterSlide 7: Key Bitcoin events and price reactions in the second quarter

It is important to note that at the end of the second quarter, Bitcoin price is still 15% below its 2014 level and 33% below its 2014 high on Jan 6, when it was listed on the CoinDesk Bitcoin Price Index (BPI) 951, Reached USD 39.

VC Investments in Bitcoin Up 28%

While the first quarter was very positive for Bitcoin in terms of venture capital ($ 57 million invested), the second quarter invested $ 73 million – an increase of 28% over the first quarter (Slide 17).

Bitcoin venture capital investments summarySlide 17: Summary of Bitcoin Venture Capital Investments

If we factor in the VC investments we saw early in the third quarter of 2014 (specifically Xapo’s most recent $ 20 million round), a total of $ 240 million has been invested in Bitcoin startups since 2012, and for the year alone In 2014, $ 150 million (63%) was invested.

VC investment forecast increased 42%

One of the most discussed elements of the Q1 State of Bitcoin report was our comparison of investing in early internet and early bitcoin startups.

VCs like Marc Andreessen compared the overall potential of Bitcoin and the current state of development with the Internet around 1993. Our comparison was intended to assess whether VCs back their high Bitcoin claims with their wallets.

Notwithstanding a number of methodological issues we discussed earlier in this comparison – including inflation and changes in the cost of starting a startup over time – we still find the comparison interesting and useful.

In April we had forecast a total investment of USD 200 million in Bitcoin startups for 2014. While this number was close, it was still well behind the early Internet investments of 1995. With recent investments, including the $ 20M Xapo Round mentioned above, we now plan to invest a total of $ 284.5M in Bitcoin startups this year.

That number would well exceed the $ 250 million invested in first-sequence internet startups in 1995 (Slide 18).

Bitcoin VC Investment compared to the early internetSlide 18: Bitcoin vs Early Internet VC Investment (Million US Dollars)

The 2014 run rate for publicly announced VC investments in Bitcoin startups would also be more than three times the total investment VCs made in Bitcoin startups in 2013.

In short, the wall of money flowing into cryptocurrency startups continues to grow and will continue to have a positive impact on the outlook for the industry.

8 million wallets, 100,000 traders in 2014

We have been working to add critical bitcoin data to our database so that we can more closely monitor bitcoin’s progress and forecast key adoption metrics such as wallet usage and merchant adoption.

To give you a quick, one-page dashboard that measures Bitcoin’s progress, we’re rolling out our top Bitcoin adoption metrics (Slide 42).

Figure 4: Key Bitcoin Adoption MetricsSlide 42: Important Bitcoin Adoption Metrics

For the first time, we’re also making year-end forecasts for the total number of Bitcoin wallets (Slide 28) and the total number of Bitcoin accepting companies (Slide 30).

Figure 5: Bitcoin wallets - total current and forecast year-end 2014Slide 28: Bitcoin Wallets – Total current and forecast year-end 2014
Figure 6: Bitcoin Accepting Merchants - Total current and forecast year-end 2014Slide 30: Bitcoin Accepts Traders – Total Current and Forecast Year End 2014

Why not come back in two quarters to see how we’ve handled those predictions?

In the meantime, we hope you enjoy reading the Bitcoin Q2 2014 report and CoinDesk’s other research reports. We’d like to thank you, our readers, for making CoinDesk the world’s leading source for Bitcoin news, analysis, and prospects, and we appreciate your feedback on how we can improve the health of Bitcoin .

[1] You can access the full table of all Bitcoin venture capital deals from CoinDesk here.

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