Here’s What You Need to Know

Here’s What You Need to Know

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Bitcoin’s value is at a three-year high. This week, for the first time since December 2017, the notoriously volatile cryptocurrency’s price officially surpassed US$18,000, boosting its market capitalisation to an all-time record of $US336 billion. 

The digital token’s highest ever price was recorded in December 2017, at US$19,783—but according to Deutsche Bank analysts, there have only been five other days in history when its price has closed above $US17,000. Now many analysts are projecting that Bitcoin’s price could top $US20,000, and at least one major U.S. bank is claiming the bull run could reach as high as US$318,000 by the end of 2021.

For anyone who doesn’t usually pay attention to financial trends and decentralised peer-to-peer cryptocurrencies, this might all seem a bit sudden. For those who jumped off the Bitcoin bandwagon following the crash of early 2018, it’s likely to be galling. And for those who held their nerve, stuck it out through hell and high water and three-year lows and are now riding the wave back to the top, it must be incredibly satisfying.

In any case, it’s fair to say there are some questions around the Bitcoin boom. Here’s what you need to know. 

Why is this happening?

According to Barney Tan, Associate Professor of Business Information Systems at the University of Sydney’s Business School, there are two main drivers for Bitcoin’s recent surge.

One is an announcement made by PayPal in October, when the platform revealed that it would allow its users to to buy, sell, and hold the token and engage in Bitcoin transactions.

“The fact that a platform of PayPal’s stature is doing this gives Bitcoin a massive credibility and legitimacy boost,” says Professor Tan, “and even more so given that PayPal has a strong reputation for protecting its users and being comparatively prudent.”

The second factor is what’s known as “network effects”: that is, the idea that a cryptocurrency’s value increases as more people buy, own and use it. Like any stock, the more people on the bandwagon the more valuable that bandwagon is. And according to Professor Tan, Bitcoin’s recent surge could indicate that it’s starting to be taken seriously again.

“Bitcoin has been around for a while (12 years), and for some time, its detractors have been saying that it is nothing but a bubble—because it is not backed by anything of value, they expect that the currency would eventually crash,” ,” he told VICE World News over email. “But it hasn’t, and its longevity could be contributing to the realization that maybe it could really be here to stay.”

Will the price keep rising?

It’s obviously tempting to jump on board a burgeoning investment and get in while there’s still some money to be made. But when it comes to stocks, it’s often the case that by the time you’re hearing about in a bar, on the street or in the back of a taxi, it’s already too late. Bitcoin’s recent surge has attracted a lot of attention, particularly given the cryptocurrency’s shaky reputation. So has the ship sailed?

According to Dr Priya Dev, a lecturer and researcher at Australian National University’s Research School of Finance, Actuarial Studies & Statistics: not necessarily.

“Bitcoin is a digital form of gold which means there is a finite supply of it—and we know there is a finite supply because we can cryptographically verify ownership,” Dr Dev explained to VICE World News over email. “Bitcoin is approaching its 2017 all-time high because demand for this cryptocurrency is outweighing supply … more people know about it and a lot of innovation is occurring that utilises Bitcoin and cryptocurrencies. 

“Because Bitcoin’s supply is fixed, its inflation—the number of new Bitcoins that enter the market—is falling, so if demand stays constant, its price will rise.”

In other words: the asset is only as valuable as it is rare, and it’s only as rare as it is popular. If Bitcoin continues to be widely coveted, especially as the number of available coins diminishes, then the price will continue to rise. But once people start offloading, a crash is sure to follow.

What about the people who have been holding on to their Bitcoins?

In the months and years following the crash of early 2018, Bitcoin fell out of favour and became passé: a word used as shorthand for a high-risk-high-reward financial investment. But for those who gritted their teeth and held on through the bumpy trough of the past three years, the chickens are finally coming home to roost.

Daniel* first mined Bitcoin in 2012 after reading about it online. Initially he “sort of forgot about it”, but as the price started to rise he says he fell in love with the technology and philosophy behind the emergent cryptocurrency. Eventually he started a mining farm and “made a good amount of money from that”, he tells VICE World News over a messaging app. And eight years later, those first few coins have come to be worth a “life-changing” amount of money. 

The only Bitcoin Daniel has ever spent is to pay for flights around the world to different Bitcoin conferences, and to gamble online. Looking back, he says he must have lost what would currently amount to over US$150,000 worth of cryptocurrency playing online poker. But he insists that he always has a stash of Bitcoin tucked away.

“Sure I could have sold but like I said, I was in love with the tech and thought of it as an all or nothing play,” he explains. “Either Bitcoin goes to unthinkable prices or it goes to zero. If you get into Bitcoin for the money, you’ll cash out, then kick yourself in four years for cashing out.

And it’s nice having something you can fall back on in case of emergencies.”

Short of an emergency, though, Daniel doesn’t plan to cash out any time soon.

“I actually think the price will be much higher than where it is right now,” he says. “It could take another decade or two, but I truly believe that we could see US$1,000,000 per bitcoin.”

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