5-Year-Old Bet on Bitcoin Adoption Lost Over Low Use in E-commerce

Omar Faridi
  • Bitcoin bull and venture capitalist predicted 10% of Americans would use bitcoin for daily purchases by 2019.
  • Horowitz appears to have lost the bet he made with journalist Felix Salmon five years ago (in 2014).

Ben Horowitz, a well-known bitcoin (BTC) bull and co-founder and general partner at Andreessen Horowitz, a giant venture capital firm with over $4 billion of assets under management (AUM), had predicted in 2014 that over 10% of Americans would have bought something with bitcoin every month by 2019, as he expected the cryptocurrency's use in e-commerce to grow.

Horowitz’s prediction came in the form of a bet he made with financial journalist Felix Salmon during a “Planet Money” podcast five years ago. At that time, bitcoin, the flagship cryptocurrency, was trading in the $360 to $760 price range.

During the 2014 Planet Money podcast, Horowitz said that bitcoin would revolutionize the traditional e-commerce and payments industry. However, Salmon, a financial news reporter who currently works at the Axios media outlet,  bet against Horowitz’s predictions as he had argued that BTC’s rising price would discourage people from using it for everyday purchases.

According to Salmon, bitcoin would not evolve and achieve mainstream adoption as he could not envision more than 10% of Americans using the pseudonymous cryptocurrency for daily transactions in 2019. Fast forward five years, the host of NPR’s podcast Planet Money had conducted a poll to assess how frequently people were using the world’s most dominant cryptocurrency.

900 Americans Respond To Survey

With the poll expected to determine who’d win the bet between Horowitz and Salmon, the survey’s results show that only 3% of US residents had bought something with bitcoin in the last month.

Approximately 900 Americans participated in NPR’s poll which asked them to respond to the following question: “Have you purchased anything using Bitcoin as your payment within the past month?” As mentioned, only 3% (which is well below the 10% expected by Horowitz) of US-based shoppers have been making purchases with the cryptocurrency.

Bitcoin Adoption Is Steadily Increasing

Although bitcoin adoption may not have reached the level Horowitz thought it would, there are more merchants taking BTC payments today than in 2014. As CryptoGlobe reported in early December 2018, there are around 1,500 restaurants in Denmark that accept bitcoin as payment method through the Hungry.dk online food portal.

Wikimedia, a free online informational resource supporter, has been accepting bitcoin payments for several years now. As the primary organization that supports Wikipedia, the Wikimedia foundation is now also accepting bitcoin cash (BCH) payments. Mainstream crypto adoption could take longer than initially expected, however many analysts remain confident that the market will eventually recover.

CME Looks to Double Bitcoin Futures Limit, but Is This Wise?

The Chicago Mercantile Exchange (CME) has a new request for its regulator, as it looks to double open position limits on bitcoin futures contracts in the face of significant interest.

Nasdaq reports that the CME has already petitioned its regulatory body, the Commodity Futures Trading Commission (CTFC), asking for an increase from 1000 contracts per spot month to 2000 per investor. Each contract represents five BTC, so essentially, at its peak,  a single investor's total position may edge towards a monumental 10,000 BTC.

This is in direct response to the contract's recent growth which is currently depicting record levels of activity, citing $370 million being traded per day. A spokesperson for the CME noted that the idea to increase limits was proposed on the continued maturity of the market:

Based on the significant growth and acceptance of our financially-settled CME Bitcoin futures markets, as well as our analysis of the underlying bitcoin market.

However, as Nasdaq writes the increase in the upper limit of positions is somewhat superfluous. As of July, the number of open interest contracts reached an all-time high of just 6100; given this, it seems the CME may be future-proofing.

Open to Manipulation?

However, concerns remain about the limit increase, as without them, the potential for manipulation rises; often to the detriment to the underlying asset. Although, as per the CTFC website, the threat of manipulation from bitcoin futures contracts is "low":

In general, position limits are not needed for markets where the threat of market manipulation is non-existent or very low.

Instead, Nasdaq posited that this might point to a lessening on the CTFC's strict rule of bitcoin; as well as a maturing of the market in general.

Nevertheless, some believe the CME's bitcoin futures contracts do pose a significant threat to the price of BTC; with some suggesting that blatant manipulation continues unchecked within the market.

As reported, there seems to be a correlation between the expiry dates of CME bitcoin futures contracts and a lull in the price point of BTC. In several instances, a significant drop in bitcoin's price has coincided with a closure from the CME. The most recent example of this occurred on Labor Day, September 2, when bitcoin rose an extraordinary 8% shortly after the CME shut.

Crypto analyst, Alex Kruger, highlighted this, noting the large gaps which formed on the CME chart, from the price discrepancy before and after closing.

This has become a pretty accepted practice within the market. Kruger has even gone to the lengths of compiling statistics each time this phenomenon transpired:

On these occasions, bitcoin cited an average 4.6% price discrepancy following the close of the CME.

Whether this is a coincidence or the market is indeed being actively manipulated is as yet unclear. Either way, with the increase of these limits it might be only a matter of time until we know for sure.

Featured Image Credit: Photo via Pixabay.com