Bitcoin Price Skyrockets — Why is Everyone Rushing to Invest?


The price of Bitcoins, a virtual form of currency, has been volatile in recent days, ranging from $106 to 147$ per bit coin. Just three years ago, Bitcoins were hardly taken seriously; you could buy one for a nickel. The tables have turned.

Why all the hurry? Recent fears surrounding Cyprus, the chance to make absurd profits, and general angst against the Federal Reserve all contribute toward the upswing. 

Recent monetary fears surrounding Cyprus have sent investors searching for new places to put their money. Breaking precedent, the Cyprus bailout included a hefty "penalty" (tax) on wealthier bank accounts. As if people needed another reason to distrust banks.

This type of fear has driven up the price of gold, the forever-safe metal. But there has been some run-off effect into other markets, namely the virtual currency market. Just two weeks ago the price of a bitcoin hovered around $47.

The currency is distinguished by its extremely low processing costs, making it easier for transactions to take place. Further, it is extremely difficult to track, attracting black market enthusiasts.

The rise of the Bitcoin in some sense embodies a movement against the Federal Reserve, who is in charge of creating all U.S. dollars. For example, libertarian Congressman Ron Paul authored a book in 2009 "End the Fed." A consistent libertarian would assure you: we don't need a central bank to print out dollars, why not let the free market determine the best form of currency?

Well, that's exactly what bitcoins are. They are a form of currency not issued by the government, but they are still very much worth something. Though this type of approach to currency would likely incur radical instability from a macroeconomic perspective, bitcoins could prove a source of hope for those who clench Ron Paul's words.

Further, the chance to make a fine dollar has contributed to the dramatic swing in popularity. For instance, imagine if you still had bitcoins that you bought when they were only 5 cents. You could sell those coins now for at a price 2,940% higher than it was before. Not too bad a profit margin!

The volatile swings in the price of bitcoins is risky there's no doubt in that. But still, where there's a chance to make money, people will swarm like moths to a flame. 

Sebastien Galy, a currency analyst for Societe Generale, noted that the market for bitcoins is likely to remain extremely volatile. As more people become interested in the virtual currency, the supply is expected to expand. But still, Galy noted, "It's a bit like the gold rush in California. Everyone is rushing into and it and everyone is over-excited."

Who's cashing in the most? Paul-Bots desperate to see the rise of a new currency? Or short time investors looking to make a quick buck? Share your thoughts below on where the "gold" will go.