Bob Pritchard in Bitcoin
In the last couple of days, Bitcoin broke $2000, Ethereum broke $200 and other crypto currencies are also exploding. Bitcoin is up nearly 65% in the last month, and smashing the symbolic $2,000 mark for the first time ever this week and Ethereum has gone from $8 to $200 in three months.
What is behind the latest bull run? TIME suggests there are three factors that are contributing to bitcoin’s boom:
Worldwide Demand for Digital Currency
Investors are clamoring for crypto-currency of all sorts. While digital money was once seen as the province of cranks and computers geeks, it’s now so mainstream that investors see it as a new asset class and are creating hundred million dollar funds to acquire it.
Others see digital currencies as an asset like gold, which can hold its value amid times of government instability. Recent political upheaval in Brazil and the United States, which led to drops in the dollar and the real, likely contributed to the recent uptick in bitcoin buying.
Finally, bitcoin may be benefiting indirectly from a recent explosion in the value of other digital currencies like Lumens, Ethereum and Litecoin. While it’s possible to buy these currencies with dollars or other traditional currencies, it’s often simpler to use bitcoins (which is the easiest digital currency to acquire) to buy them. In other words, more people may be buying bitcoin as a vehicle to invest in more exotic currencies.
Japan and China
At the start of April, regulators in Japan introduced new rules that treated bitcoin more as a part of the banking system. That change led to a burst of trading activity in the country as investors rushed to swap yen for bitcoin. The effect on the bitcoin price has been predicable.
And in China, the country is growing more tolerant. Analysts are pointing to a big drop in the difference in bitcoin prices between U.S. and Chinese exchanges. This suggests bitcoin-related investments in China are seen as less risky. The discount that $CNY #bitcoin exchanges trade to $USD exchanges has dropped from 20% to 5% in the period of a week. In other words, a whole lot of Asian investment is causing bitcoin and other crypto currencies to soar.
Bitcoin has been prone to spectacular crashes. The crashes followed flurries of media about the value of bitcoin, which created a hype cycle, and in turn drew the attention of mainstream investors who helped inflate the price.
Is this deja vu? Social media is buzzing about the incredible surge in the value of crypto-currency assets. And this year’s edition of Consensus, a three-day trade show in New York, promises to be the splashiest yet with big names like IBM and Microsoft appearing alongside a long list of venture capital firms.
There a lot of good reasons for the hype—not least because digital currency and blockchain technology (an online ledger system that relies on multiple computers) has gone mainstream—but also reasons for caution. As with past hype cycles, there are far more people cheering for bitcoin than against it. This is partly because there are few people who truly understand digital currency, and most of those who do, own a large amount of it, so skeptics are in short supply.
As of this afternoon, the value of a bitcoin was $2,200 and Ethereum was $184. Incidentally, if you had spent $1000 on Bitcoin 7 years ago, you would be worth $900 million.
Bitcoin is a remarkable cryptographic achievement and the ability to create something that is not duplicable in the digital world has enormous value – Eric Schmidt, CEO of Google