Bitcoin has risen to almost 50,000 euros – reason enough for economists to take a closer look at the short history of the twelve-year-old cryptocurrency. Result: five reasons are responsible for an unstoppable growth spurt. However, painful slumps are also certain.
The cryptocurrency Bitcoin, which only saw the light of day twelve years ago, is moving at a rock ‘n roll pace: two steps forward and then one step back. With each price caper, the number of fans – and critics – increases. Some invest with a view to making a quick buck. Others compare the hype with the infamous tulip bulb bubble of 1637 in the Netherlands, the first well-documented speculative bubble in economic history.
A veritable guild of Bitcoin disciples has developed in the U.S., which is reason enough for economic historians, such as those at the business magazine “Fortune,” to take a critical look at the digital currency’s growth spurts, as well as its dropouts and interruptions.
To do so, they have divided the bitcoin’s development into chapters. Chapter one spans from February to April 2011 and is called the “DPDay”, the dollar parity day. That’s when the Bitcoin bull run peaked in February, with one Bitcoin briefly worth more than one dollar.
Alleged drug trafficking fueled first bitcoin bubble
The cryptocurrency’s rise to this mark was hugely significant in its development. It began back in July 2010, with Bitcoin worth just a few cents on the dollar when it was first mentioned on “Slashdot,” a news platform for tech geeks. The increased interest led to the price of a Bitcoin rising to a dollar on February 10, 2011, which resulted in a second post on Slashdot that attracted further attention. This basic cycle is catching on: Real technological or infrastructural advances drive up the price, then the price itself generates further, less sustainable growth.
The first truly wild Bitcoin bubble, and thus chapter two, begins a short time later with a June 1, 2011 article about the “Silk Road” market on the Darknet. The article, on a now-defunct news platform, described, partially devoid of facts, how drugs could be bought anonymously with Bitcoin on a hidden website. It appeared immediately after several new Bitcoin exchanges opened, making it easier to buy the token. The combination of attention and access catapulted the value of a Bitcoin from ten to nearly $30 in just one week. Then the hype collapsed, and the currency plummeted for months until it landed at little more than two dollars.
Barely three years after breaking through the dollar parity barrier, bitcoin approached another crucial threshold, cracking the $1,000 mark in late November 2013. But the price was purely speculation-driven and didn’t even last two weeks. By mid-December, it had collapsed by half. It was as if lead stuck to the price, going from low to low for two years. By January 2015, it was at a comparatively modest $172. Prices hadn’t made $1,000 for more than three years after the initial breakout until another chapter, and with it the craziest of all Bitcoin bubbles so far, began in 2017.
The great bull run of 2017 ended in tears
Its distinguishing feature was that this time investors weren’t targeting bitcoin at all. Instead, the 2017 bull run was largely fueled by a wave of newly minted so-called “alternative” cryptocurrencies  that started with great expectations. The general euphoria dragged bitcoin along, landing it at $19,665 on December 15, 2017. Contributing to its run was that a novel process known as an Initial Coin Offering (ICO)  allowed creators of new currencies to sell their offerings directly to investors. Bitcoin benefited from the run on these offerings, but its share of the overall crypto market fell. “It all ended in tears,” the authors of Fortune write. Just a week after the peak, bitcoin fell more than 25 percent. Other cryptocurrencies slumped even further. In the long run, many of the cryptocurrency projects turned out to be brazen scams. ICOs have since been banned by the U.S. Securities and Exchange Commission.
And where are we now? Five reasons suggest that bitcoin will continue to climb in the long term.
1. investors are also diversifying into cryptos.
First, there is the Corona pandemic, in which investors are diversifying their portfolios. They want to be armed in case the cheap money strategy pursued by central banks around the world does go awry. They are watching: The amount of money in circulation in U.S. dollars and euros is steadily increasing – with no end in sight. However, the amount of Bitcoin is limited, which makes it a kind of digital gold and is considered a safe haven for staunch supporters.
2. companies accept bitcoin as a means of payment
Second, more and more companies are accepting Bitcoin as a means of payment. Tesla’s announcement to accept Bitcoin and invest in the cryptocurrency itself, PayPal’s entry into the crypto industry – all these are accolades for the cryptocurrency. They lead to the fact that more companies are considering entering.
3. push from digital state currencies.
Third, debates about the introduction of digital state currencies are boosting the cryptocurrency already in existence. While a digital euro  or dollar would be controlled by the respective central banks and thus a different construction, the projects also show how seriously monetary policymakers are now taking digital currencies, thus directing investor interest toward Bitcoin and Co. Not least, institutional investors are jumping on the rolling bandwagon.
4. halving drives the price
Fourth, the effect of so-called Bitcoin halving is unfolding. The supply of Bitcoin is thus artificially reduced on a regular basis. While the development of the Bitcoin money supply is thus limited, the central banks constantly increase their holdings. During the first halving in November 2013, the value rose from around twelve dollars to almost 1150 dollars within a year. The second halving followed in July 2016, when the price was around $650. By the end of December 2017, the value per unit was worth just under $20,000. The most recent halving occurred in 2020, and since then the price has increased by more than 700 percent.
5. brokers are facilitating trading in bitcoin
Fifth and finally, access to bitcoin has become easy. Brokers offer it to everyone. For example, the “German version” of Bitcoin comes from East Westphalia. More precisely, from Bad Herford. This is where the Bitcoin Group, the operator of the largest German trading center for the cryptocurrency, is located: Bitcoin.de. The boss is Marco Bodewein. He and his team of around 30 people have a mission: they want to build Germany’s first crypto bank.
Time is playing in their favor. Bodewein, who also heads the Futurum bank behind it, says the trading site is gaining new customers “in the mid 100-figure range every day.” The bitcoin traders want to reach the one-million mark this year. The company’s own holdings of cryptocurrencies held recently cracked the 100-million-euro mark. Bitcoin accounts for the largest share, with the remainder spread across other popular cryptocurrencies.
I wouldn’t pay with Bitcoin – it’s too valuable for that
These five reasons are what make analysts euphoric. Forecasts, such as that of the major bank JP Morgan, predict a Bitcoin price of more than 140,000 dollars. Is that justified? Banker Bodewein doesn’t quite share the euphoria: “Everyone has to decide whether they want to use and accept Bitcoin as a means of payment. I would not do so. Bitcoin is too valuable for that,” he says, adding, “After all, I don’t pay with gold.”
Experts at the Bundesbank are also pouring water into the wine: bitcoin and co. are highly speculative crypto assets, says Burkhard Balz, the board member responsible for payment transactions. He still considers a total loss to be possible. Because, “At its core, it’s always about people being able to trust a currency. Only if they have confidence will prices remain stable. Establishing this confidence is the most important task of central banks. Without stable money, no economy can prosper in the long term.”