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Business News/ Money / Calculators/  How bitcoin became expensive

How bitcoin became expensive

A look at how and why bitcoin prices surged over the past year to get a sense of how to go about investing in cryptocurrency

Bitcoin was the marquee attraction for new investors given its incredible rise from $900 in January 2017 to $20,000 by December 2017. Photo: ReutersPremium
Bitcoin was the marquee attraction for new investors given its incredible rise from $900 in January 2017 to $20,000 by December 2017. Photo: Reuters

Last year, for the first time, bitcoins and other cryptocurrencies took the world by storm. In fact so strongly that everyone wants to get a piece of that action. Whether you already own cryptocurrencies or plan to get some, sooner or later you’ll want to know how much the crypto coins are worth when converted to your currency of choice. Later, you may want to know whether to hang onto your coins or to sell them—hopefully making a little profit in the process.

Analysing price charts and understanding trading terms from the financial world can be rather daunting, especially for a beginner. Today we look at the story of the price movement of cryptocurrencies for you to get a sense of how to go about investing in them.

The discovery phase (2009-2010)

Bitcoin was not traded on any exchanges in 2009. The first recorded price was in 2010. Technically, bitcoin was worth $0 in 2009, during its very first year of existence. Price of bitcoins never topped $1 in 2010 and the highest price for the year was just $0.39

The acceptance phase (2011-2016)

Just two years old, bitcoin achieved parity with the dollar on the Mt Gox exchange in February 2011. Bitcoin reached the top of first ‘bubble’ at $31, followed by the first major price drop. It dropped to as low as $2 by December 2011, eroding more than 95% of its value. By this time, many notions about how to improve bitcoin appeared, but not all of them could be implemented. Some people from the community started their own projects and altcoins came into existence. Altcoins are cryptocurrencies other than bitcoin. A majority of altcoins are forks of bitcoin with small uninteresting changes. Coins such as ripple, litecoin, primecoin and namecoin came into existence. It is in this period that the value of bitcoin started rising at a consistent level from $2 in December 2011 to an all-time high of $1,242 in November 2013 and it fell to $750 by November 2016. However, this rise did come with extreme volatility at multiple support levels. For instance, bitcoin went up from the levels of $150–$200 in October 2013, rising to $1,242 on November 2013. After this rise, the price crashed to $600, bouncing back to $1,000 level and crashing again to the $500 range in just two months.

The meteoric rise (2017)

Even the most casual observer of the digital currency scene will be aware that 2017 was a record year in terms of price movement. Bitcoin was the marquee attraction for new investors given its incredible rise from $900 in January 2017 to $20,000 by December 2017. Bitcoin was not the only cryptocurrency to shine in 2017. The price of ethereum rose by over 9000% in 2017. The market valuation of ethereum recorded a 64-fold increase from $700 million to $45 billion, officially becoming the best performing cryptocurrency in the market year-todate. Starting from $8 in January, ethereum reached a high of $450 by the end of the year. Meanwhile, ripple started the year at $0.0063 and ended the year above $1 fetching returns to unheard tunes of 36000%. The world sat down and took notice of these unheard percentage rise in 2017 and started looking at cryptocurrencies as an asset class which could not be ignored.

The sustenance phase (2018)

This year, everyone has started questioning the longevity of cryptocurrencies and its usage. Originally launched as a way to transact digitally, bitcoin and other cryptocurrencies have become a form of an asset class. However, bitcoins will continue facing high volatility for multiple reasons. Market participants will become increasingly demanding to see real use cases of the much-hyped blockchain technology and the related role of the cryptocurrencies to power this technology. Governments across the countries will be stepping in with regulatory frameworks for conduct of cryptocurrency exchanges, which can affect the price movements in either direction. Also, 2018 might witness a fierce competition between bitcoin and other competent crypto currencies for dominance.

Praveenkumar Vijayakumar is chief executive officer and founder, Belfrics Global

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Published: 23 May 2018, 11:05 AM IST
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