The price of one full Bitcoin (BTC), the original decentralized digital currency, officially hit 10,000 U.S. dollars early Tuesday morning, according to data from CoinMarketCap.
The blockchain “coin” began its latest rally after Black Friday, hitting an all-time high of $9,000 on Saturday, November 25, only to surge past 10k only three days later.
Soon after, the price dipped down to around $9900. At the time of this writing, BTC has risen back to $10015.80.
Why so high?
There are several likely reasons for this massive price surge.
First, a host of big financial players recently announced they will get in on the action. Most prominently, CME Group, the largest futures exchange in the United States, has signaled that it will allow BTC futures trading as early as mid-December. While it bodes well that many traditional investors may make the jump to digital currencies, a considerable number of them seem poised for a big short. The current price spike may indicate a buying frenzy to get in ahead of the short.
Second, Bitcoin’s community has been energized by good old market competition, with a “fork” off of its network, Bitcoin Cash, trying to claim the Bitcoin brand.
Long story short: All digital currencies, even BTC, are still essentially in beta. The current Bitcoin Core software — the program on which users run a Bitcoin “node” to ensure the integrity of transactions — is only at version 0.15.1.
Bitcoin has recently struggled to handle all the transactions on its network, as the user base has grown dramatically while the speed of transaction validation remains static at around seven confirmations per second. As such, transaction fees have spiked. Bitcoin Cash has employed a fix that, at its current adoption rate, makes sending money much faster and cheaper right now, but Bitcoin fans say that the changes could set the network up for disaster in the future.
Bitcoin Cash currently is the world’s third-largest decentralized digital currency with a market cap of $27 billion to BTC’s $166 billion. I suspect some of the recent bullish investment has been intended to keep that gap as wide as possible.
Third, the Thanksgiving dinner table. I have very little doubt that millions of Bitcoin enthusiasts pitched their family members on the new technology over the holiday meal — and a flood of new buyers has been the result. Over the weekend, Coinbase, one of the oldest USD-to-Bitcoin conversion services, saw several hundred thousand new signups and became the #1 trending app in the Apple store. Additionally, the “Cash” app from Square (run by Twitter CEO and censorship enthusiast Jack Dorsey) implemented USD-to-BTC conversion just last week. The combination of more simple options to buy digital currency and zealous evangelism from early adopters likely helped push the price over $10,000.
Fourth, Bitcoin is in high demand in Zimbabwe — which illustrates its real-world value as a deflationary currency operating with or without governments’ consent. After the African country ousted dictator Robert Mugabe, its already-hyperinflated “bond note” currency has become even more worthless, and Zimbabweans are turning to digital currencies like Bitcoin, Monero, and Dash to preserve their financial security. Bitcoin reached a price of almost 18,000 USD in Zimbabwe this week, even after the country’s central bank declared it illegal.
Fifth, a new study claimed this week that close to four million bitcoins have been lost by their owners, which would decrease the existing supply (16.7 million) by almost a quarter and thus raise the scarcity/deflation of BTC.
And sixth, I seriously suspect that some of the people pumping up Bitcoin over the past week wanted to win personal bets that it would reach $10,000 by the end of the year.
In the short term, it is very hard to predict what might happen with Bitcoin, as this technology is still in its infancy and is changing finance and the Internet almost as much as the Internet changed communication. There is nowhere near enough historical data to know what its “normal” is, and we have yet to see how the digital currency market will interact with the traditional stock market.
I suspect there will be a very big dip once old-school investors who hate Bitcoin gain the ability to short it. However, I also suspect we will see a stock market crash in the next few years, as we are approaching the U.S. record for its longest bull market, 113 months. In that case, digital currencies could either be a refuge for investors to stem their losses, or they could see mass cashouts from people trying to buy stocks at their lows.
In the long term, the technology behind Bitcoin will continue to grow in awareness and adoption, once people understand its advantages (no more Equifax-scale hacks, more incentives to save, no extra costs for international transactions, no censorship, etc.). Whether BTC rebounds from its next big crash or whether its userbase migrates to a competing coin with better privacy/fungibility, I have no clue.
In Case You’re Lost… Bitcoin Explained in Two Paragraphs
Bitcoin was created in 2009 by an anonymous person or persons using the name “Satoshi Nakamoto.” It is a decentralized currency, where many users network their computers (as “nodes”) to validate and confirm transactions rather than sending all their data to a small number of high-capacity servers. The “coin” is awarded through a process called “mining,” where users command their computers to produce cryptographic hashes that secure the network’s data. It is not governed by any individual company, though a group of programmers that go by the name “Bitcoin Core” do act as gatekeepers of sorts, as they are the developers of the software used to run a node.
Anyone who wants to own or invest in Bitcoin can do so at various currency exchanges or through peer-to-peer transactions. One does not need to buy a “whole” Bitcoin — just as one USD is divisible up to 2 decimal places for a total of 100 cents, one BTC is divisible up to 8 decimal places for a total of 100 million “satoshis.” Thus, one can buy Bitcoin or similar currencies in small amounts. For example, 20 USD would exchange for 0.00199684 BTC at the current price.
This article is not a recommendation to buy any blockchain currency and should not be considered financial advice.