Since its IPO seven years ago, bitcoin has registered a dramatic take-off. While it was first traded at $0.07 in July 2010, the virtual currency rose to a remarkable high of $2,955 just yesterday (June 12th, 2017). If you do the math, someone who bought $100 worth of bitcoins in 2010 now owns no less than $4.6 million. The rise has especially accelerated in the last few months – the price has more than doubled since April – which led economists to warn against a possible bursting of the bitcoin bubble.
Experts put various theories forward to explain this phenomenon. Firstly, it could simply be a speculative craze similar to the 17th century tulip bulb mania. In such a case, buyers are attracted by the spectacular price increase, no matter what the asset is. Nevertheless, it is more likely that bitcoins serve as a store of value, just as gold. Indeed, as bitcoins are not managed by any central bank, they are extremely appealing for investors who mistrust monetary authorities’ policies. Finally, bitcoin also represents an exchange currency, alongside the dollar or the euro. Indeed, regulators are starting to consider bitcoins like any other currency, following the example of the Japanese government. Last April, Japan passed a law to accept bitcoin as a legal payment method, which was backed by major retailers. Russia is also seeking to regulate the virtual currency.
Nevertheless, cryptocurrencies represent a real ongoing experiment and no one can predict the dangers blockchain technology. Investors run the risk of losing everything should a breach ever occur. In addition, if regulators don’t react, cryptocurrencies could end up suffering from their bad reputation of being used exclusively by criminals to conduct activities anonymously.