With bitcoin set to breach $10,000, how did we get here?

At the beginning of the year, bitcoin hit 1,000 US dollars, and serious debate began over whether or not the cryptocurrency was the future of finance or a dangerously inflated bubble.

December is likely to see bitcoin hit 10,000 US dollars, and while that same debate rages on, the massive price hike over the course of 2017 lends an air of legitimacy that it lacked 12 months ago. So how did we get here, and where does bitcoin go now?

Investors follow the crowd, and follow the money

The massive growth first and foremost comes down to an upsurge in investors taking the plunge. While Wall Street, the Hang Seng and European stock markets are posting stronger growth, their returns simply cannot match bitcoin’s rise of almost 900 percent in 2017.

A man feeds money into a bitcoin ATM in New York, November 27.

With the 2008 global economic crisis still fresh in the minds of investors who are both weary and wary of traditional investment sectors, the ease and anonymity of bitcoin have outweighed its potential risks.

Japan’s Bitcoin olive branch

While many governments around the world have eyed bitcoin with suspicion, Japan has legalized and regulated it, instilling confidence in investors who had been knocked back by exchange closures and bans on initial coin offerings in China and South Korea.

With stores across Japan now encouraged to accept bitcoin and exchanges being granted operating licenses since October, the seal of approval from the world’s third biggest economy has been a huge boon to the cryptocurrency.

Zimbabwe, Venezuela crises fuel bitcoin boom

Beyond the impressive price hikes, Bitcoin is attractive because it is decentralized and, with a limited supply of 21 million Bitcoins available, arguably “inflation-proof” in terms of monetary supply.

For countries like Zimbabwe and Venezuela which know too well the perils of printing money and hyperinflation, bitcoin presents a more secure alternative.

For Zimbabweans, a complete collapse in confidence in the banking sector has seen a push for alternatives, and bitcoin, despite being ruled illegal earlier this month, has grown rapidly in the country.

On Monday, bitcoin in Zimbabwe hit 17,875 US dollars on the local Golix exchange, days after Emmerson Mnangagwa took office in place of Robert Mugabe. Demand for the cryptocurrency is far outstripping supply.

Street vendors wait for customers at a makeshift stall in Mbare township outside Harare, Zimbabwe, November 27.

In Venezuela, CNBC reports that because so many people have turned to the mining of bitcoin as an alternative to low salaries in an era of hyperinflation, authorities have arrested people over concerns that its rise will further damage the bolivar, the local currency.

Inflation hit 4 000 percent in the country last week, and cryptocurrencies allow Venezuelans to purchase goods online from overseas at regular prices.

Bitcoin goes mainstream in the world of finance

One year ago, barely anyone could have conceived that the world’s largest futures exchange would even consider working with bitcoin. Yet earlier this month, the Chicago-based CME Group announced that it would launch futures for bitcoin, providing investors exposure to the cryptocurrency and putting it on a platform with interest rates, stock indices, commodities and currencies.

With a market cap now in excess of 160 billion US dollars, bitcoin has also attracted more and more hedge funds to pour money into the cryptocurrency, with CNBC reporting that at least 120 are dedicated solely to bitcoin.

A French asset management company unveiled Europe’s first bitcoin mutual fund last week in a further signal that bitcoin is no longer being brushed off as an enormous bubble by everyone in the finance industry.

So bitcoin isn't a bubble then?

While the price will almost certainly break the 10,000 US dollar barrier soon, and the world of finance appears to be eagerly moving into cryptocurrencies, that doesn’t mean concerns over a bubble are over.

The price has risen so high and so quickly that even bitcoin exchanges are getting worried. The Financial Times reports that IG Group – the world’s largest trading platform – suspended some bitcoin derivatives because of “a high security risk,” while other marketplaces have raised fees to slow down speculation.

Neil Wilson, senior market analyst at ETX Capital, told The Guardian that “with no intrinsic value to bitcoin, it’s hard to see this as anything other than a giant speculative bubble.”

His is a view that many other market watchers share and have voiced consistently over the past year – but still bitcoin has continued to rise and rise.

(CGTN)