Here’s Why Bitcoin’s Price is Surging

Bitcoin Price Makes Record High

 

Bitcoin to USD has officially broke $17,000 (according to Cex.io); previously unfathomable amount of money. There are three major reasons for this massive run-up in the price of Bitcoin: consumer sentiment and general market conditions.

Bitcoin News Coverage Exploding

Bitcoin has now been around for quite a while, but recently mainstream coverage has exploded. Forbes, Nasdaq, CNBC and every other mainstream news outlet is covering Bitcoin around the clock. Never before, has Bitcoin received this much attention. This may be attributed to it’s record setting high of almost $20,000. Every time you check the news, the price has swung wildly up or down. People are fascinated and enamored. Some Bitcoin investors come from an irrational belief in Bitcoin or an irrational disbelief in the banking system, but it is important to isolate out the reasons why this surge has occurred and then assess if they might continue in the future.

Consumer Sentiment

Fear of Missing Out is starting to become a reality for most Bitcoin skeptics.

Nobody likes to miss out on an amazing investment. It appears that we are seeing a lot of money enter the market due to the desire to get rich quickMany new people believe their money is chasing past returns with the hope they will continue indefinitely. One of the key investment mantras is that previous returns do not guarantee future results. TheBalance reports that this mantra can lead to an imbalanced portfolio, or inadequate due-diligence before investment. More money rushing into a small, relatively unknown, market could be a key reason why Bitcoin price is surging.

Will Bitcoin’s Price Continue to Increase?

It is very possible that this price trend could continue for some time, but it isn’t entirely rational for these investors to jump on with the assumption or hope that it will

The investors who are jumping into the fray as a means to achieve these mythological returns are creating somewhat of a self-fulfilling cycle. More and more people want to invest in Bitcoinnaturally the price is going up. This creates a seemingly never-ending cycle that to pushes the price up until something occurs and stops the trend. Bubbles are common in economies. Upward trends and downward trends. Eventually Bitcoin is going to find some sort of an equilibrium price as regulation on exchange proliferates.

It is hard to beat the cognitive biases built into our heads that see these returns and think we are doing something right. The actual thesis of Bitcoin replacing fiat currency or being a viable hedge to the financial system hasn’t been proven yet. So, anything that has occurred in the Bitcoin space is nothing more than speculation about its future use.

What does the Price of Bitcoin Mean?

Bitcoin’s surging price isn’t necessarily a bad thing, but it is a sign of instability. Many new investors don’t understand what Bitcoin or cryptocurrency is and why the price is going up. For every libertarian or programmer who understands the political and technological advances that come with something like Bitcoin, the user is another guy who sees investing as good way to make a quick buck.

As the cryptocurrency industry grows with continued investment, Bitcoin will enter mainstream attention. News companies are talking about it constantly, you hear about it at lunch, and you probably have more friends that own it. This is a sign that it is starting to have enough exposure to hit a stabilized demand. At a point, everyone who would be interested in something like Bitcoin will learn about it and have a chance to buy it. Until then, there will be rapid increases in demand that translate to price increases.

Bitcoin Supply is Limited

Market conditions refer to the overall economics behind Bitcoin. Bitcoin was designed to create a finite number (21 Million) of coins that will ever be produced, or “mined”. Once all the Bitcoin is mined, only transaction costs will maintain the network. The rate at which coins are mined is slowing down, so this creates a limited supply that will continue to run up prices. In this way, Bitcoin is a deflationary commodity that will naturally increase in value as time goes on. Bitcoin is inherently deflationary due to its design. There is also slippage in the ecosystem as passphrases are forgotten or cold storage fails and some Bitcoin are lost forever

Institutional Investors Buy In with Bitcoin

So when you combine the limited supply of Bitcoin with the increasing demand, you have a recipe for a run-up in prices. What will cause this to occur at an even more rapid rate is the entrance of institutional investors to the market. Everyone from hedge funds and pension funds have stayed mostly on the sidelines until now because this wasn’t seen as an investment worth risking capital. Now that it has reached a level of market capitalization and been accepted into the general zeitgeist, it’s investment potential is being realized. This means many more millions of dollars flowing into the cryptocurrency as well as other blockchain-related assets.

Bitcoin’s Future is Uncertain, But Hopes are High

Bitcoin shouldn’t be seen as a phenomenon on its own. It is the first of many innovations based on blockchain technology that may revolutionize economies. This can be compared to the advent of the Internet. There were many novel products, but also many scams. Unknowledgeable investors sought quick gains and invested without thinking. This may have give short-term returns, but didn’t last forever. Blockchain may be the most important new technology, but no one can say for sure whether Bitcoin will remain the “king of cryptocurrency”.

The question is, will this surge continue?

We can see why demand is increasing as a reaction to the prices going up so quickly, and we know that supply is limited, but what would change this? It is not yet clear what will have the power to reverse the rapid rise of Bitcoin, but it is also unlikely that this trend of exponential growth can continue forever. Either way, it is likely the marking of a new age of computing and financial services which makes this an exciting time for all!

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