Bitcoin Continues Winning — Up 8% in Aug, YTD 2012 Now Up 115%

August 2012 became the sixth month in a row that the BTC/USD exchange rate ended higher than the level it was at when the month had begun. It has been quite a rally. Since November 2011, where the closing price was $2.75, every month except one has resulted in a net gain.

Augusts closing price of $10.16 is an 8% gain over Julys close and means that so far this quarter (Q3 2012) there has been a 51% gain. For 2012, where the price opened at a $4.72 level, the price rise from January 1st now exceeds an eye-popping 115%.

The 243,950 bitcoins issued which Bitcoin miners took in during the month is valued at $2.67 million using the average daily valuation for the month of $10.94.

Even with the rising exchange rate, mining difficulty rose at an even faster pace which causes mining profitability to fall. The level is still respectable and most mining operators can profit from these levels even those using GPUs.

Those with GPUs should be making plans for the near future though as in fewer than 100 days the upcoming block reward subsidy drop occurs and mining revenues will, in an instant, collapse by half. With the difficulty chart showing additional mining capacity is coming online at a steady, rapid pace, then unless there is a corresponding rise in the exchange rate those GPUs may need to go even sooner.

Without being able to know the future difficulty and exchange rates, milking those GPUs for a while longer is prudent. Adding GPUs though, at this late stage of the game, only makes sense for a very specific and limited profile.

What the month-to-month exchange rate chart doesnt show is the volatility during the month. And this August Bitcoin exchanges saw their fair share of that.

The intra-month chart shows the sudden 50% drop from the monthly high to the monthly low occurring over a period of just two days. Whether this was due to investors who were spooked by a rumor, manipulation by a party that has amassed a large amount of coins, or simply the collapse of another Bitcoin bubble, this is essentially a call for financial innovations that can effect price stability.

This call is starting to be heard. MPEx. the largest exchange where Bitcoin options are traded, reported that in August a record 75,000 CALL and PUT option contracts were traded on its exchange platform. That is a level more than five times greater than the level it had seen in July. The number of new trading accounts opened at MPEx also broke a new record in August as well.

ICBIT is another financial service heeding the call. This exchange offers trading of BTC/USD futures contracts. Bitcoins are the currency used for buying and selling (short) the contracts and are leveraged giving the speculator additional buying and selling power.

Also traded at MPEx are bonds, shares of funds, and stocks even. Another exchange where stocks are traded is the GLobal Bitcoin Stock Exchange (GLBSE ). Because of the leeway provided for the concept of an asset listed on GLBSE, niche offerings are found, such as one asset that enables speculation on the value of the Argentinean peso. Thus there are many instruments available to hedge and obtain protection from exchange rate risk.

What each of these platforms have in common is that they use only bitcoins as the funding and withdrawal methods and that they operate as unincorporated entities. This does introduce exposure to counterparty risk and involves other challenges as well. These platforms are operating in a transparent manner though and have business models that appear to be sustainable.

Trading volumes at the exchanges were very strong in August. Record monthly volume levels occurred at the U.S. exchanges BitFloor whose BTC/USD market volume gained thanks to free cash-deposit methods and Camp BX which still accepts deposits made using Dwolla. Canadas VirtEx broke its monthly trading volume record too.

Also seeing record monthly volume was Slovenias BitStamp (BTC/USD funded with SEPA transfers) and Bitcurex out of Poland which saw tremendous volume for its BTC/PLN market which is notable considering that it just launched this past summer.

Both BTC/GBP markets had record volumes but Intersango is currently without service from any UK bank so the September volume for their BTC/GBP market will be impacted unless they see a timely resolution.

BTC-e. operating from Russia, rebounded strongly after suffering a security incident in July. It not only remained the second biggest Bitcoin exchange but broke its monthly trading record as well.

Mt. Gox, which just released a financial summary. had record monthly trading volumes in nearly all of their markets. August was the first month that Japan appears to be buying bitcoins to any significant degree as Mt. Goxs BTC/JPY market finally is showing some signs of life. The BTC/HKD market at Mt. Gox has awakened as well.

Global Awareness

While many Bitcoin-related developments originate out of the U.S. (e.g. from CoinBase which just raised a quarter million dollars in funding and from BitInstant which is launching a Bitcoin Mastercard ), Bitcoin is truly a global happening.

Bitcoin is a technology. It is a software protocol. It is no less useful in any one place in the world versus any other. This is like how HTTP, the protocol that web browsers use to communicate, is used universally in every country and on nearly every type of networked computing device.

As a result, we are seeing interest in Bitcoin proliferate in entirely new areas. Bitcoin exchange is available now for the first time in Nepal and Bangladesh for instance. Bitcoin is growing as a method used for remittances. As an example, a local exchanger in Manilla converts the recipients bitcoins into Philippine pesos which are then disbursed at existing remittance centers .

Unlike commercial endeavors which may do phased rollouts of their offerings, one region at a time, awareness of Bitcoin is occurring organically and in numerous places across the entire globe simultaneously.

This is evidenced with requests as to how bitcoins can be purchased seen for the first time from Turkey. Bolivia. Iceland and elsewhere. The traffic hitting the BitcoinTalk forum has been rocketing higher recently, and several Bitcoin website owners have reported seeing the traffic growth occurring primarily from outside the U.S.

Looking at the list of speakers for the Bitcoin Conference 2012 held in London September 15-16, and it becomes quite apparent that Bitcoin has a global presence that is expanding far beyond traditional centers of finance and technology.

When we learn that in New Hampsire a Libertarian politician begins accepting bitcoins for campain donations we might shrug as that was something that was inevitable.

But when dentists in Finland start accepting it and Ms. Watanabe finds bitcoin as something interesting to trade, the perception of Bitcoin then changes dramatically versus the way online media portrays it. Those media outlets tend to cover only the sensationalistic bits which raise emotions yet, in the grand scheme of things, these topic really are quite trivial, regardless how overblown is their portrayal .

The story that isnt being told is how Bitcoin just keeps on keeping on. A year and a half ago Jason Calacanis (@Jason ) was 100% certain in his prediction that governments would start banning bitcoins by now. That outcome hasnt happened and theres been nary a peep about Bitcoin from them, even when asked.

Theres been the argument that mere mortals couldnt manage Bitcoin transactions without suffering losses to hackers, yet nobody has complained of any losses when multi-factor authentication is used with reputable exchanges.

There were fears that scalability issues such as the growing blockchain would make it so bitcoin would only be for the purview of techies yet tens of thousands of new users have found Blockhain.info/wallet (including Android and iOS mobile versions) and Simplified Payment Verification (SPV) alternative clients are gaining users. Upcoming releases of the Bitcoin.org client are expected to make insignificant many of the growing pains experienced thus far.

Though Bitcoins progress doesnt necessarily travel in a straight line, all that we see today assures us that Bitcoin and its ecosystem are headed in the right direction and that the current trajectory points to a tremendous future.

That projection comes just from what we know is coming as the result of the collaboration from hundreds and hundreds of people who have been involved through today. We cant yet fathom what Bitcoin will become when this mass of collaborators from around the world numbers not in the hundreds but in the tens of thousands of people.

That day is coming though. These month-to-month increases occurring with nearly every metric available are telling us that it was time for decentralized digital currency to arrive.

But lets keep it our little secret, or therell be no more $10 coins anywhere left to be found.