Rise and Fall of Bitcoin Demand

Svmplv By Svmplv, 8th Apr 2014 | Follow this author | RSS Feed | Short URL http://nut.bz/3hpl8z-v/
Posted in Wikinut>Business>Investment

A quick summary of the demand factors that caused the rise and fall of bitcoin the popular cryptocurrency.

Bitcoin or Bust?

Bitcoin has become a trendy investment since its inception in 2009. The crypto-currency was hailed as the new frontier of peer-to-peer transactions; this new medium was decentralized, anonymous, and allowed people to move large sums of money under the table within seconds all while being relatively secure.Since then Bitcoin has been on a roller coaster of up and downs due to media generated demand which in turn caused a buying frenzy and the price skyrocketed in 2013 when Bitcoin peaked at $1,134 per coin. Due to the currency being primarily used as a commodity investment or payment for illegal goods and services, multiple governments including Russia, China and now the US are condemning most Bitcoin trading accounts effectively barring investors from transferring funds into exchanges. Not to mention the plethora of massive Bitcoin robberies and the FBI shutdown of the popular drug market Silk Road.This attached article explains how the IRS is attempting to regulate Bitcoin by classifying it as taxable property instead of a digital currency. This new ruling means users will now need to track every transaction to determine their taxable gain, a heavy burden that some feel is not worth the effort in such a volatile market.

The Bitcoin situation illustrates how close substitutes, buyer expectations, and rising input costs directly affected the demand for Bitcoin. Bitcoin being an extremely elastic luxury item these factors along with potential corrective taxes on the horizon had a major influence on the currency demand.Bitcoin in its early stages was first to the market and there were little to no close substitutes. Buyer expectation at this point was that Bitcoin was secure and on the rise. There were virtually no input costs and anyone could easily “mine” or earn Bitcoins. This is done by contributing computing power to help facilitate system transactions by solving algorithms and be rewarded with Bitcoin. These algorithms increase in difficulty after one is solved so, people began forming mining pools to collectively solve the algorithms and collect the reward.This is around the time I personally began investing in Bitcoins, I purchased 2.5 bitcoins at $200/coin.

Soon Bitcoin’s popularity spiked as word spread and Bitcoin became more international. A similar version of Bitcoin, Litecoin was then created to try and contend with the up and coming currency-think of Litecoin as silver to gold. Then came the media coverage which in turn inflated the price of Bitcoin to north of $700/per coin. Bitcoin began became a more widespread form of payment. Bitcoin hit an all time high in the fall of 2013 at $1,134/ per coin, I sold all my coins shortly thereafter for $800 with the expectation that the currency was in a on a bubble and couldn’t go any higher. Inevitably governments began cracking down on these illegal markets,and in October of 2013 the FBI took down the Silk Road. The Silk Road was one of the most popular markets for illicit substances and services but, it only took Bitcoin as payment. Buyer expectation shifted again and the price of Bitcoin plunged, lots of people lost money and trust in the system. Then this February, Mt. Gox the biggest Bitcoin exchange lost over 750,000 Bitcoins to a series of hacker attacks. The price of Bitcoin went on a tear and has yet to recover. Amid turmoil in the market various governments displayed their disapproval by formally condemning the currency among them Japan, Russia, China, and the US.


Bitcoin, Business, Demand, Demand And Supply, Demands, Econ, Economics, Investment, Money, Supply Curve

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author avatar Tri Haryadi
8th Apr 2014 (#)

piece of nice article. Thanks, it's really inspiring for me. Hopefully you can visit my page too here: https://www.spektrumdunia.com/

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author avatar yugasini
22nd Aug 2014 (#)

Sorry I could not open your link in google, safari, opera and in sea monkey browsers why?

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author avatar Rose*
10th Apr 2014 (#)

The price seems to have fallen back on rumors that China has banned it

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author avatar yugasini
22nd Aug 2014 (#)

Thanks for the information about Bitcoin rise and fall of it. Now it is 507 US dollars today.Have a nice day.

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