In the second article of this two-part series, we explore whether Bitcoin investment in 2014 was ultimately a success or a failure. While the first part examined the year-long downward trend in Bitcoin's price and its perceived role in the ecosystem's growth, this analysis looks beyond price metrics to evaluate the true health of the Bitcoin economy.
We concluded earlier that the 2013 price peak was likely artificially inflated by fraudulent activities associated with the Mt. Gox exchange. Therefore, the 2014 price correction was a natural market adjustment rather than a signal of the cryptocurrency's demise. This correction, combined with a steadily increasing supply of mined Bitcoin, contributed to the price decline. However, a falling price does not necessarily indicate a loss of interest in digital currencies.
This article investigates key non-price indicators of Bitcoin's economic vitality throughout 2014, including venture capital funding, the creation of new Bitcoin companies, job growth within the industry, and activity on darknet markets. Together, these metrics provide a clearer picture of Bitcoin's overall development and investment potential during that period.
Venture Capital Investment
Despite the declining price, investment in Bitcoin infrastructure actually increased throughout 2014. Data from Bitcoin Pulse, which tracks angel investors actively seeking opportunities in the Bitcoin space, shows consistent growth in investor interest over the year.
The weekly average growth rates for investors listing Bitcoin as a focus area were:
- Past 7 days: +0.47%
- Past 30 days: +0.62%
- Past 90 days: +0.56%
- Past 180 days: +0.71%
- Past 365 days: +0.72%
The monthly average growth rates further reinforce this positive trend:
- Past 30 days: +2.69%
- Past 90 days: +2.41%
- Past 180 days: +3.08%
- Past 365 days: +3.12%
- Total number of Bitcoin investors: 1,911
This steady growth in investor interest, even as prices fell, indicates strong confidence in the long-term potential of Bitcoin technology. 👉 Explore more investment strategies
Growth of Bitcoin Companies
The number of new Bitcoin companies founded in 2014 serves as another critical indicator of economic health. Bitcoin Pulse defines these as companies listed within the "Bitcoin" market category on angel investment platforms.
The data reveals substantial growth:
Weekly Average Growth of Bitcoin Companies:
- Past 7 days: +1.79%
- Past 30 days: +1.47%
- Past 90 days: +1.67%
- Past 180 days: +2.59%
- Past 365 days: +3.14%
Monthly Average Growth of Bitcoin Companies:
- Past 30 days: +6.44%
- Past 90 days: +7.34%
- Past 180 days: +11.6%
- Past 365 days: +14.18%
- Total number of Bitcoin companies: 512
This significant expansion in the number of companies building Bitcoin-based products and services points to a maturing and diversifying ecosystem, laying a more solid foundation for future growth.
Bitcoin Job Market
The creation of new jobs is a direct consequence of company growth. Tracking the number of job listings categorized under "Bitcoin" provides insight into the labor market's expansion within the industry.
The data shows a mixed but generally positive trend:
Weekly Average Growth of Bitcoin Jobs:
- Past 7 days: -2.34%
- Past 30 days: -0.37%
- Past 90 days: +1.59%
- Past 180 days: +1.46%
- Past 365 days: +1.98%
Monthly Average Growth of Bitcoin Jobs:
- Past 30 days: -1.57%
- Past 90 days: +7.01%
- Past 180 days: +6.43%
- Past 365 days: +8.76%
- Total number of Bitcoin jobs: 125
While the data from this single source showed a slight dip in the month preceding the article, the overall yearly trend remained strongly positive. It is also important to note that this data represents only one platform; other dedicated cryptocurrency job boards reported significant growth throughout 2014.
Another tangible sign of adoption was the expansion of Bitcoin ATM networks. The global number of Bitcoin ATMs grew at an average monthly rate of 8.39% in 2014, with a total of 331 machines operational by the end of the year.
Activity on Darknet Markets
Darknet markets represent a significant, though often overlooked, segment of Bitcoin's economic activity. Regardless of the legal and ethical debates surrounding them, their activity level is a relevant data point for analyzing overall Bitcoin usage.
In 2014, concerted efforts by governments, such as Operation Onymous, targeted and shut down several major darknet markets. Some analysts argued that this increased risk and enforcement led to decreased activity, thereby reducing Bitcoin demand and contributing to its price decline.
However, insights from sources monitoring these markets suggested a different reality. According to an administrator of DeepDotWeb, a news site covering the darknet, the impact of government actions was limited. They noted that users quickly migrated to alternative markets after shutdowns, and that media attention often attracted new users. They contended that darknet markets remained a key component of Bitcoin's transactional volume, which also included speculative trading, remittances, and gambling.
This perspective suggests that economic activity within these niches remained robust, further contributing to the overall ecosystem's transaction volume and utility.
Conclusion and Outlook for 2015
The data from 2014 presents a clear narrative: while the price of Bitcoin was correcting from an artificial high, the underlying economy experienced substantial and noteworthy growth across multiple fronts. Venture capital flowed in, new companies were founded, the job market expanded, and transactional use cases persisted.
Therefore, labeling Bitcoin as the "worst investment of 2014" based solely on its price performance is inaccurate and fails to capture the full picture. It is still too early to declare Bitcoin a complete success or failure; it remains a technology and economy in its early stages of development.
The outlook for 2015 was optimistic. The market correction stemming from the Mt. Gox collapse was expected to conclude, potentially leading to greater price stability. Furthermore, increasing regulatory clarity from governments worldwide—though a point of debate within the community—was anticipated to provide legal certainty for the digital currency, thereby making Bitcoin investment less risky and more attractive to a broader audience.
Frequently Asked Questions
Was 2014 a bad year for Bitcoin?
While the price of Bitcoin declined significantly throughout 2014, it was a year of strong fundamental growth for the ecosystem. Investment in new companies, job creation, and infrastructure development all increased, suggesting the market was maturing beyond mere price speculation.
What was the main reason for Bitcoin's price drop in 2014?
The primary driver was a market correction from the artificial price peak of 2013, which was inflated by the fraudulent activities of the Mt. Gox exchange. Additionally, a continuous increase in the supply of mined Bitcoin contributed to the downward pressure on price.
Did government actions against darknet markets hurt Bitcoin?
While actions like Operation Onymous aimed to disrupt illegal online marketplaces that used Bitcoin, evidence suggests users migrated to other platforms quickly. The overall impact on Bitcoin's transactional volume from these niches may have been less severe than some predicted, and it remained a part of the broader economy.
How can I evaluate the health of a cryptocurrency beyond its price?
Look at on-chain metrics like transaction volume and active addresses, ecosystem development such as new startups and developer activity, regulatory clarity, and institutional adoption. These fundamentals often provide a more complete picture than price alone.
What was the significance of the growing number of Bitcoin ATMs?
The expansion of the Bitcoin ATM network was a strong indicator of growing mainstream accessibility and adoption. It provided an easy on-ramp for people to convert cash into cryptocurrency, physically integrating Bitcoin into local economies around the world.
What is the lesson from Bitcoin's performance in 2014?
The key lesson is the importance of distinguishing between short-term price volatility and long-term fundamental growth. A declining price can coexist with a strengthening ecosystem, highlighting the need for a holistic investment analysis.