Cryptocurrencies Hit Record Highs: Bitcoin's Value Has More Than Tripled Since the Start of 2017

Bitcoin is currently worth $3,250. In January, its exchange rate surpassed the price of an ounce of gold. Since the beginning of the year alone, bitcoin's value against the dollar has more than tripled.

This is attracting new investors to this young market, who call bitcoin the "gold rush of the 21st century." However, the exchange rate of the virtual currency is subject to large fluctuations and attracts speculators.

– Bitcoin's value is a factor that attracts an increasingly wide circle of users interested in this cryptocurrency. When it was created, the value of one bitcoin was less than 1 US cent. There is a legend circulating online that in 2011, 10,000 bitcoins were paid for two pizzas. If those two pizzas were valued today at the current exchange rate, they would be worth over $10 million – Marcin Borek, CEO of Net Value, publisher of the currency comparison site Kurencja.com, told the Newseria Innowacje news agency.

Bitcoin (BTC) is the most popular among over a thousand cryptocurrencies currently in circulation. It was created in 2008 by a person or group of people using the pseudonym Satoshi Nakamoto. Their identity has still not been officially confirmed.

The virtual currency is increasingly accepted in the real world and introduced as an official means of payment. Japan, as well as some Norwegian and Swiss banks, have decided to take such a step. The list of stores and service points where the virtual currency can be used is also constantly growing (since June, bitcoins can be used to pay for orders on Pyszne.pl).

However, bitcoins are not issued by any central bank, and no financial institution exercises control over the transaction system. Hence, bitcoin is often called the "currency of the free world." The issuance of bitcoins is handled by the users of the system themselves, who generate them using mathematical algorithms (this is known as mining coins).

Initially, the value of bitcoin against the dollar was set at 1 dollar = 1,309.03 bitcoins (the cost of energy needed to mine coins). However, over more than 8 years, the value of this cryptocurrency has increased several hundred thousand times. Its capitalization grew during this time from zero to the current level of $45 billion (half the value of the entire cryptocurrency market).

– Bitcoin reached a value of one thousand dollars in November 2013, and in June 2017 it already exceeded three thousand dollars. History shows that bitcoin's exchange rate changes very dynamically. These were both increases reaching several hundred percent per year and decreases of several dozen percent. It must be admitted that this market is young and subject to various fluctuations – emphasizes Marcin Borek.

The story of the first online purchase made with bitcoins is famous. On May 22, 2010, programmer Laszlo Hanyecz bought two pizzas, for which he paid 10,000 bitcoins (then the equivalent of about $30). Their value at today's exchange rate ($3,257, as of August 7 this year) would be about $16 million each.

2017 is a breakthrough year for bitcoin's exchange rate. In January, the virtual currency surpassed the price of an ounce of gold. In July, it jumped to a record level of $3,250. For comparison, in January 2011, the price was about $0.30. Two years later, in June 2013, it reached $100, and in November of the same year – $1,000. The current exchange rate is 1 BTC = $3,448.

– The value of a cryptocurrency, like any other financial asset, is a kind of social contract. At a given moment, it reflects the balance between sellers and buyers. However, the problem with cryptocurrencies is that we have much greater difficulty determining their intrinsic value. Unlike stocks or real estate, it is not easy to value simple cash flows from cryptocurrencies in the coming months or years – notes Marcin Borek.

Due to the rapid increase in value, some investors describe bitcoin as the best long-term investment or the "gold rush of the 21st century." However, experts emphasize that it should be remembered that bitcoin itself has no intrinsic value. The exchange rate of the virtual currency is determined by the laws of supply and demand and a range of external factors, which makes it difficult to forecast.

– Shareholders can expect a certain dividend amount based on the company's financial data. It is similar with real estate; it is a fairly stable market. A given property can be valued based on comparable offers and market prices in the area. In the case of cryptocurrencies, we have two basic valuation factors. The primary one is investors' expectations regarding the future effectiveness of the cryptocurrency in meeting specific user needs. Added to this are speculative movements, dependent on waves of users who enter this market and buy substantial amounts of bitcoin – says the CEO of the publisher of Kurencja.com.

Analyst Kay Van-Petersen, who correctly predicted bitcoin's previous increases, forecasts that the value of the virtual currency may rise by nearly 3,500 percent over the next 10 years and reach $100,000.