With value of a bitcoin surging past $420 today, the bitcoin economy is now valued at more than $5 billion. How did we get here and what has caused this seemingly rapid climb?
As the value of a bitcoin has more than triple over the past 6 weeks, I figured it would be a good time to review some of the factors responsible for this current period of abrupt appreciation. I believe it’s important to recognize the fundamental drivers of this growth in light of recent media attention and critics who call bitcoin a bubble. Obviously nothing goes up forever, but the current bitcoin price surge is not all hype as some claim.
Below are 10 Reasons Why The Value Of Bitcoin Is Skyrocketing.
- It all started with the FBI shutdown of The Silk Road– an anonymous online marketplace that allowed people to buy illegal drugs with bitcoins. The Silk Road shutdown resulted in brief, but shallow sell off and subsequent rebounded within a few days. This event showed the world and governments that illegal activities were a very small fraction of the transactions taking place on the bitcoin network. It also removed a huge element of risk from bitcoin in the eyes of investors.
- Next, the U.S. government shutdown for more than 2 weeks and a looming debt ceiling crisis would highlight the financial issues of the world’s largest economy and owner of the world’s reserve currency. The issues that led to the shutdown and debt ceiling crisis are (unfortunately) still alive and well, and have caused frustration both domestically and abroad. This highlights the need for a new monetary system free from politics and centralized control and increased demand for bitcoins.
- There’s now major interest and demand for bitcoins from China. In October, Chinese bitcoin exchange BTC China became the largest bitcoin exchange in the world by volume. State own television networks in China have aired segments on bitcoins, and Jaisule (a subsidiary of the largest internet company in China) began accepting bitcoins as payment for their services. With a population of nearly 1.4 billion people, China’s interest has played a major role in the recent run-up in value of bitcoins.
- There is also evidence of major interest from deep-pocket investors who are buying bitcoins in large quantities and who have been public about their acquisitions and/or plans to purchase. Chamath Palihapitiya, ex-Facebook executive and early employee, is just one of those investors who already dropped $5 million into bitcoins and has plans to invest another $10 million! Chamath and other investors who share his sentiment are helping drive genuine interest and investment into bitcoins. The Bitcoin Investment Trust also surpassed its goal of $10 million by year-end, receiving $15 million in four weeks, all slated to for investment directly into bitcoins!
- Over the past month, several large venture capital investments have been announced for bitcoin start-ups. Companies like Circle, Ripple Labs, itBit, GoCoin, and others have been recipients of nearly $20 million. In less than 18 months over $40 million has gone into bitcoin start-ups and this is just the beginning. A wave of experienced entrepreneurs may now be entering the bitcoin space as we saw with the announcement from Jeremy Allaire (founder of Brightcove) and his new bitcoin company, Circle that received $9 million in venture funding. Bitcoin is starting to mature more quickly than expected.
- There has also been a flurry of several new, more robust and compliant bitcoin exchanges and trading platforms coming online in the past couple months. Bitcorati has identified 50 different bitcoin exchange platforms active today. The top 4 bitcoin exchanges, BTC China, Bitstamp, MtGox, and BTC-e are currently leading the way, but several new exchanges like CoinX, itBit, Kraken, Coinsetter, and Coinfloor are offer promising new alternatives while sites like btcQuick and Localbitcoins offer ways for people to convert cash into bitcoins in the continuing absence of BitInstant.
- The continuing exponential rise in bitcoin mining difficulty, the near impossibility of mining for profit, and shipping delays from mining equipment makers have forced many miners to give up and just start buying bitcoins.
- Governments from several countries, including Canada, China, Germany, and the Netherlands, have either directly or indirectly supported bitcoin with relaxed regulations and/or no regulation at all (yet). Canada seems especially welcoming of bitcoin too. The recent installment of the Bitcoin ATM (Robocoin) in a Vancouver coffee shop saw 100,000 Canadian dollars circle through the system it its first 8 days on site!
- Another important trend is the number of businesses announcing the acceptance of bitcoins as payment, including small shops and small businesses all over the world. Even large businesses like Subway have seen franchise owners in Russia and the U.S. embrace bitcoin as an accepted form of payment. Take a look at the bitcoin community on Reddit on any given day and you will also see a number of announcements of business now accepting bitcoins.
- To top it all off, bitcoin is back in the spotlight and being discussed for good and bad, sparking up debates and conversations on major news and TV networks, finance and technology circles. The increased exposure makes people curious and sparks a new wave of interest in bitcoin. Although sometimes the media spreads misinformation and the usual FUD, the ultimate result has been a boon for bitcoin!
So, that’s a little background behind the recent surge in value of bitcoins. If bitcoin is the world-changing technology that many of us believe it is, the price is starting to demonstrate that, and yet bitcoin still has long way to go!
Did I forget anything? Feel free to comment below and let us know why you think the value of bitcoin is surging!