World Crypto Index

Why Bitcoin Price is So High

Bitcoin has seen an innumerable amount of swings since its inception. Many of these shifts have been colossal jumps, be it from pennies to dollars or hundreds of dollars to (for the moment), thousands. There are a number of different reasons for this, and we are going to break them down.

2009-2012

The first few years of Bitcoin were unknown to the general population. Initially, only a very small number of people owned Bitcoin, and even less owned it in substatial volumes. When BTC started to gain actual traction in 2010, just $100 worth of the currency would now represent a fortune worth tens of millions (at current 2017 prices). Once the currency became a bit more understood, a snowball effect of legitimacy began to take place. That is what is most imperative for any currency to gain traction, especially at the start. Just like a hot new stock needs many investors and exposure to drive up the price, so do cryptocurrencies. Speculation on BTC’s validity has dwindled with time, so this initial boost in credibility was absolutely imperative in ensuring that it was able to retain any sustained value at all.

Come 2011-2012, Bitcoin was trading at a value that started to eclipse the $1 mark, and then the few dollar mark, and it began to gain more of a following than ever before. This, again, was important because it served as the framework that would allow BTC to have enough credibility in the eyes of potential owners. If any new commodity does not have a base of buyers that believe in its inherent value, it will not be able to last. Look at any failed paper currency to see this illustrated. When faith is lost in a commodity, its value decreases accordingly. Bitcoin weathered this storm and was prepared to gain an even bigger number of owners.

2013 was when Bitcoin really came into the public’s view for the first time. Once trading for under $50 in 2013, it would eventually top $1,000 by the end of the year. If you can find anything with a 2,000% return in just a matter of months, you will be able to promote it and sell it. Businesses involved in BTC started popping up left and right. There were innovative stores willing to accept BTC as payment, trading platforms were popping up all over, and the price seemed like it would never collapse…until it did.

Bitcoin’s First Major Increase-And Decline

There were a number of factors at play in Bitcoin’s first sizeable “crash.” First, China, where the bulk of trading activity for Bitcoin takes place, had advised against the recognition of Bitcoin as actual currency. This is a double edged sword, as fans of BTC are generally seen as “against the system” as it related to banking and paper money. With that said, a legitimate means of trading is necessary to allow more transactions to be completed. If a store or individual won’t take your Bitcoin, it essentially has no value in that transaction.

While China’s sell off was largely considered to be a primary force in the sudden decline of BTC’s price, so too was the collapse of Mt. Gox, the biggest exchange platform for Bitcoin. Mt. Gox was even bigger in 2013 than Coinbase is now, having handled well over the majority of all transactions.

Tens of millions of dollars worth of Bitcoin were effectively stolen due to poor security and management measures by Mt. Gox. Eventually they would disclose this to their users, and in turn, file for bankruptcy in 2014. Most Mt. Gox users withdrew all they could well before the bankruptcy itself, but many others lost everything they had.

The failure of Mt. Gox brought Bitcoin’s biggest, recurring issue to light: security. When you are using the internet for any sort of transaction, especially an open source one, you will be prone to hacking. This happened on a large scale at Mt. Gox and scared many away from Bitcoin altogether, and rightfully so.

2014-2016 Bitcoin Prices

The years following Bitcoin’s big drop in price were relatively stable. When we say stable, we mean by Bitcoin standards only. For the most part, trading of BTC took place in the $300-$700/coin range. These years followed a very basic U shape, declining from the remnants of 2013’s shakeup, flattening out, then again rising back towards the middle-end of 2016.

These years were both uneventful and, in hindsight, very important for the future of Bitcoin. It’s relative stability ensured that it was a useful means of storing and trading wealth. It hung around and, while it did not experience dramatic price movements, proved that it could be secure and useful to the masses. These comfort levels have undoubtedly aided in the run up in pricing for Bitcoin in 2017.

Bitcoin Prices Now

Bitcoin has seen one of its best years ever in 2017, at least in terms of $ increases. Topping $1,500, then $1,750 and now $2,000, this has been nothing short of a remarkable increase in price in a short period of time.

But why? The answer is both complex and simple. To put it simply, volatile political climates worldwide (the US being a major contributor), and inflation issues with paper currencies have driven many to BTC.

The third factor, the human element, is where you would find the most predictability. As mentioned before, the pricing of commodities is derived solely from its backing. As BTC has increased more and more, the $ figures have become more impressive. Those who scoffed at $100 prices are now interested when they see $1,500 and $2,000.

These big numbers have added a significant number of users to Bitcoin’s ecosystem. Not only are there more people buying BTC, but there will undoubtedly be more stores that accept Bitcoin as payment.

The simple economic principle of supply and demand has created this >$2,000 price, but it will very likely be the reason for its inevitable pull back as well. Barring a discrepancy vs. every historical commodity, there will, at some point, be a reduction in BTC’s price, and it will likely be sizeable.

The problem with trying to capitalize on this near certainty is two-fold. First, timing the price of BTC is nearly as impossible as timing the market of stocks and equities. Basic investing advice says to never try to time the market, and this holds true here as well.

The second underlying dynamic is determining when to get back in. If you are reading this article, chances are you are interested in and believe in cryptocurrencies, but how will you make money if you sell now? The only way to profit from inflated prices is to sell at a high price and re buy at a lower one. What you consider reasonably high, or low, prices is a matter of personal opinion.

Basic advice will often times lead to successful investing, and while cryptos are hardly the most basic medium for investing, the same ideas can be applied. You can sheer a sheep many times, but if you try to skin it by going all in on BTC indefinitely, be prepared to miss out on further gains. Is holding onto your BTC indefinitely the “safest” play? Only time will tell, but when everybody and their brother is looking to buy, you should usually consider selling while the iron is hot, whether its Bitcoins or real estate. We look forward to seeing where the markets go in the next few weeks and months.