The price of a bitcoin rose over $ 14,000 on Saturday morning. It was the first time since January 2018 that the virtual currency reached this level. As of this writing, the currency is trading at around $ 13,800.
Bitcoin, a currency whose name has become synonymous with price volatility, has seen three major bull runs in the past. The price of Bitcoin peaked at $ 30 in June 2011, peaked at $ 1,100 in January 2014, and reached just under $ 20,000 in December 2017. Every high was followed by a violent crash in which the currency lost more than 80 percent of its value.
After the last bubble peaked in December 2017, the price continued to decline until it hit a low of around $ 3,200 in late 2018. It peaked at around $ 13,800 in mid-2019, dropped to $ 4,000 in early 2020, and has now risen back to $ 14,000. Bitcoin fans are hoping for another boom that will propel the currency past 2017 highs, but that's far from certain.
The price of Bitcoin has risen, although the first ideas did not work
The early craze for Bitcoin from around 2010 to 2015 was based on hopes that it would become a mainstream payments network. That never worked. During periods of heavy usage, the Bitcoin network can be congested, resulting in sky-high fees and hours of delays in processing transactions of lesser value. Proposals to drastically expand network capacity were resolutely rejected by Bitcoin traditionalists.
The third bitcoin boom in 2017 was due to the proliferation of new cryptocurrencies and a fad for "first coin offerings". People who wanted to invest in new blockchain-based currencies often bought bitcoins first and then swapped the bitcoins for a new token, which increased the price of bitcoin. Many of these offers turned out to be worthless, which worried investors about the concept and caused a crash in 2018.
It is not clear what is driving the recent Bitcoin resurgence. A significant development has been the emergence of "decentralized financial services", which offer blockchain-based alternatives to credit and other traditional banking services. While these services are mostly not based on Bitcoin, the increasing interest in other cryptocurrencies tends to increase the price of Bitcoin. Boosters hope that these new "DeFi" services, based on smart contracts, will disrupt the conventional financial system. I remain skeptical.
Bitcoin continues to attract interest from mainstream investors who are simply looking to diversify into a new asset class. Payment provider Square likely contributed to the current rally in early October when it announced it was buying $ 50 million worth of Bitcoin, roughly 1 percent of the company's assets, to diversify its investments.
Square described Bitcoin as an "economic empowerment tool" and pointed to the technology's potential to expand access to financial services worldwide. Square has been offering a Bitcoin trading service since 2018.