We - the public - first started hearing a lot about Bitcoin in 2013. At first, most of us were skeptical, thinking it was some kind of scam or Ponzi scheme. Thanks to this attitude, the price of Bitcoin – which started at $13, shot up to over $1100, and then dropped again to $177.
Now it’s shooting up again, as you can see from this chart.
So what caused the price growth over the last eighteen months? Why did the price spike, and is it stable now? Here are some facts to help you figure it out!
1. Bitcoin is worth something – because the world agrees
Bitcoin is considered valuable, based on a combination of its use as a value store, and as a means of transferring payments. Even though it’s not a currency backed by government (i.e. a fiat currency), there was over a billion dollars invested in technology companies, as covered in this Forbes article.
People are learning more about Bitcoin, and therefore learning to “trust” it as a bona-fide global currency. It might take some time for various countries to catch on, but it’s in the pipeline.
2. Fiat currency is unstable – but Bitcoin is stabilising
Venezuela experienced huge inflation over the last few months, and Xapo account sign-ups in the country increased by 400% over this period. When people are concerned about the safety of the local currency and the value of their assets and savings – they turn to Bitcoin. This is especially true for developing nations undergoing political and socio-economic upheaval, like several Latin American countries; and India, which recently saw a demonetisation process that could affect its economic progress.
3. The gigantic Chinese markets helped fuel the Bitcoin spike
It’s been observed by experts that unprecedented Chinese volumes are driving most of the global trading markets. The CEO of BTC China (China’s first - and the world’s longest-running - Bitcoin exchange) is Bobby Lee, a Chinese-American tech and economics guru born in Africa.
Bobby explained, “It was in the fourth quarter of 2016 when prices started getting much higher. In doing so, the higher prices attracted media attention. Forbes, Wall Street Journal, Chinese media, and others produced a self-reinforcing cycle of hype. When the price of Bitcoin nears an all-time high, or reaches relative parity with gold prices, media attention accelerates.”
He went on to say: “People are learning about Bitcoin from the media and having confidence in the technology, which then leads to more people buying, the price continuing to rise and more media attention. The hype cycle continues.”
He has also explained why the Chinese people love Bitcoin so much. "Chinese people lack a lot of opportunities to invest," Lee told Business Insider. "Bitcoin is a high-growing, volatile asset class. In some ways, it’s a very ripe opportunity for day trading to make money."
4. Chinese banks are investigating Bitcoin exchanges
The People’s Bank of China (PBOC) doesn’t want Chinese people to lose investments in the case of a financial crisis. They developed a special investigation unit to look into the Bitcoin price increase - then released a statement to the press to help break the cycle. This pushed the price back down to around $800. The risk of Chinese people pulling capital from the country helped fuel this investigation.
Part of the documentation submitted by PBOC can be translated as follows: "Bitcoin is not a currency and shouldn't be viewed as such. Those who invest in Bitcoin should accordingly be aware of the risks it poses and protect their investment."
However, the Bitcoin markets can be considered to have stabilised and matured. The predicted ongoing downward trend didn’t happen - the price bounced back to around $900, where it is today.
5. 2016 was a great year for the Bitcoin industry
2016 was a fantastic year for Bitcoin holders. You can use Bitcoin in more places, they have more purchasing power and you can now use bitcoins to grow your portfolio in many more ways than before. As an example, you can buy twice as much company stock with Bitcoin today than you could with your bitcoins this time last year.
According to the Financial Times, Bitcoin performed better than any other currency over the course of the year. Basically, when people get surprises, they buy Bitcoin. It happened in Greece when they threatened to leave the European Union in 2015, in Britain when they voted to leave the European Union in 2016, and in the US when Donald Trump won the U.S. presidential election despite predictions that he would lose at the polls.
6. Bitcoin is on its way to becoming THE global currency
Vinnie Lingham, South African internet entrepeneur and Bitcoin guru, believes that Bitcoin could become a global currency over the next period.
Is bitcoin an asset, or just a commodity, you might ask? Lingham says the former accurately portrays bitcoin at the current stage as bitcoin offers high liquidity, stable global exchange rates, and is not perishable. Bitcoin does not depreciate over time unlike assets or physical products.
“A store of value can be a commodity that’s not perishable (so wheat, corn and pork bellies are not stores of value) or subject to depreciation over time (for instance, mass produced motor vehicles, or other homogenous products where technology & time can render a store of value worthless).” explained Lingham.
7. The price of Bitcoin could rise to over $2000 – great news for investors
The price of Bitcoin could rise to more than $2000 in 2017. This is predicted by experts looking at U.S. President Donald Trump’s expected economic stimulus policies, which could send inflation sky-high and propel the dollar to record highs, a report from Danish Saxo Bank claims. The Trump-promised fiscal spending binge is expected to add to the approximate $20 trillion of U.S. national debt, tripling the current U.S. budget deficit from about $600 billion to $1.2 trillion to $1.8 trillion. People also fear a stock market crash in the US in 2017, which in turn sends more people towards Bitcoin.
