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Bitcoin hit a new high of over AU$13,000 in November 2017.
However, it's a notoriously volatile currency, and it’s difficult to know what bitcoin will be worth even a week from now, let alone a year from now. To have a shot at predicting the price you need to know how the cryptocurrency is bought and sold, and what factors affect the price of bitcoin.
However, there might be two factors to consider above all others.
First, only 21 million bitcoin will ever be created. Throughout 2017, the number of bitcoin in circulation increased from about 16 million to 17 million, but it will slow down as it gets closer to the 21 million limit. The final bitcoin isn't due to be mined until the year 2140.
This finite supply and its popularity increasing more quickly than its availability is thought to keep prices increasing.
Second, it's important to remember that bitcoin is now just one cryptocurrency among hundreds. Although it's the most valuable, bitcoin's overall cryptocurrency "market share" is declining. Competing cryptocurrencies can offer some features that bitcoin can't, and many people think another currency will eventually overtake bitcoin.
Many bitcoin proponents speculate that its limited supply will only increase the value of the cryptocurrency in the long run and is its greatest strength. But critics say that this will be its undoing.
They point out that inherent scarcity is a useful way of controlling value, but might be too impractical for bitcoin to ever become the standard global currency.
To judge for yourself whether it's worth buying bitcoin, you may want to look at the history of its ups and downs to better understand the factors affecting its value.
Bitcoin value can change a lot very quickly and has a history of sharp ups and downs.
Here are a few things that could affect the price of bitcoin:
Because bitcoin is a decentralised currency, the standards that dictate how to refer to it are still forming. XBT is the official designation, while BTC is the more commonly used code.
In its earliest days, bitcoin’s currency code was BTC. With its growing acceptance as a legitimate currency, the International Standards Organisation (ISO) designated bitcoin’s notation as "XBT". If a currency is not associated with a specific country or government, its three-letter note starts with an “X.”
However, XBT has yet to gain much adoption beyond banker and finance types. BTC seems to be what the everyday person and most enthusiasts prefer. You’ll probably continue to see references to both BTC and XBT until one eventually sticks as the standard.
The very first bitcoin transaction took place on January 12, 2009, from creator Satoshi Nakamoto to developer Hal Finney. On October 5, online publication New Liberty Standard pegged the bitcoin exchange rate at 1 USD = 1,309.03 BTC — a calculation based on the cost of electricity for a computer to create bitcoin.
July 2010 saw the founding of Mt. Gox, a bitcoin exchange that would eventually grow into the largest player in the market. We’ll start our bitcoin price history in 2011, using figures from CoinDesk’s price index.
Note: Unless otherwise stated, all prices in this article refer to BTC:USD exchange rates.
Early in the year, one bitcoin finally became worth as much as one US dollar. In just a few months, the price of bitcoin shot past the $10 mark.
But on June 19 Mt. Gox was hacked, causing customers to lose more than 4,000 BTC. Bitcoin’s value hovered around $30 for several days and began a slow descent to around $4 by the end of the year.
Bitcoin experienced a recovery in 2012. The cryptocurrency didn’t hit the same heights it did the previous year, but it climbed back into the double digits by the end of the year.
June saw the founding of Coinbase, which is one of the largest bitcoin platforms today. In November, the publishing tool WordPress began accepting bitcoin as payment.
In February, bitcoin surpassed its previous all-time high and then abandoned the $30 range as it continued growing in value.
At the same time, Mt. Gox was failing as bitcoin transactions overwhelmed its servers. In the same month bitcoin broke the $200 mark. Less than a month after that, it shot past $1,000.
Chinese investment in bitcoin pushed the price of the cryptocurrency even higher. But December also saw the largest theft of bitcoin ever of 96,000 BTC from Sheep Marketplace. This was also the year that China banned its financial institutions from processing bitcoin transactions.
Bitcoin’s price euphoria came to an abrupt end, and the cryptocurrency steadily lost value over a year. Mt. Gox finally shuttered its doors. However, Microsoft and PayPal-owned Braintree started accepting bitcoin as payment.
In late January, Coinbase launched its bitcoin trading platform, while Mt. Gox’s CEO Mark Karpeles was arrested.
But the European Court of Justice ruled that bitcoin is currency, not property, and that the cryptocurrency would not be assessed a value-added tax in the European Union. Bitcoin’s price broke the $400 mark toward the end of the year.
The marketplace software OpenBazaar was released over the summer. It’s a peer-to-peer platform on which users can buy goods with bitcoin. Bitcoin’s price, in recovery mode at the beginning of the year, approached its former glory as it hovered around $1,000.
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Bitcoin reached a new peak early in the year at over $1,100 on January 4, then promptly plummeted below $800 a week later. It would repeat this pattern throughout the year, including hitting multiple all-time highs on 1 September 2017 before dropping by an immense 20% in the next three days.
This sudden drop may have been the result of traders taking advantage of the peak to sell off their bitcoin.
Then on 29 November it broke US$10,000 (AU$13,200).
As you can see, a lot can happen in a very short time.
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