With all the buzz surrounding crypto today, it's hard to remember that just a few short years ago Bitcoin et al. were just something tech geeks occasionally told jokes about over their mocha latte frappuccinos. Today those tech geeks each own more than 100 Bitcoins and spend all their waking hours mining for more while the guy next door who wouldn't know a USB from an HDMI just bought some crypto through his account on the exchanges. What's going on here? What unholy series of events has led to cryptocurrencies suddenly becoming the hottest commodity on planet earth?
In January of 2009 a programmer calling himself/herself Satoshi Nakamoto made a very low visibility announcement that he/she had solved the problem of repeat spending and launched a decentralized cryptocurrency he/she called Bitcoin." No one took it very seriously at the time, mostly because nobody knew about it. But over the ensuing months and years, word of mouth spread and Nakamoto's work began to be hailed as the long-awaited breakthrough virtual currencies had been waiting for. Thus the start of the popularity.
By 2011 a single Bitcoin that had entered (virtual) existence worth less than a penny was worth more than $10. In January 2017 eight years after being floated the value was a robust $1,000 and by December that same year the price was nearly 18,000. Whereas it took Bitcoin 6 years to go from$10 to $1,000 it took less than one year to go from $1,000 to $18,000 (although prices have fallen back in recent weeks to about $11,000). If it seems like a bubble to you, you're probably right. The question, however, isn't "Is it a bubble?" the question is "How did it happen?"
So what has been behind the recent surge in cryptocurrency valuations? Climate change? Brexit? Boredom? All of the above? None of the above? Actually, it's none of the above. Skyrocketing valuations can likely be pinned down to 2 main causes: trust and speculation along with something commonly called "mob psychology."
It's sometimes hard to put your finger on the exact causes for a bubble, but if you look closely enough, you're likely to discover a spark or two that set the flame. And virtually all bubbles at some point are given over to mob rule. Since valuations rose more than 1,000% during the past year, there's no other way to describe what's been going on as anything other than a bubble and that's alright, as long as everyone knows what they're getting into.
Cryptocurrencies have come a long way since Satoshi Nakamoto launched Bitcoin in 2009. More merchants are agreeing to accept them every day, new cryptocurrencies are being created on a weekly (and even daily basis), and valuations, while they went through a bit of a retrenchment in January, have rebounded to some extent. The only word of caution we'd throw in is don?t buy because someone else is buying. Buy because it's a good investment.