About this time last year I wrote an instablog about the best performing currency of the year 2011. There was one currency, which gained 1400% against the USD last year - and this same currency is again - by far - the best performing currency this year gaining another roughly 220% against the FEDs USD . .
That is a two-year yield of 4400% vs. USD (from 0.3 USD/BTC to 13.4 USD/BTC). In gold terms, bitcoin is also doing well.
But why does bitcoin keep going up?
Several factors could be at play here. I'll just list a couple.
1) Bitcoin has in November reached block 210.000. This means that the bitcoin p2p network has been running smoothly for four years (longer than almost any centralized e-currency ever has), and - more importantly - with block 210.000, 50% of all bitcoins to ever be issued are now in circulation. The next 25% will be issued over the next roughly 4 years.
This is the beauty of deterministic monetary inflation - No central banker wildcards here!
2) The "bitcoin economy" finally started to gain serious traction 2012. With awesome merchant services like bitpay.com (and others) accepting bitcoin payments (while getting payouts in regular fiat currencies) it is much easier than as ever before; and with companies like bitinstant.com which allows you to purchase bitcoins for cash at 700.000 locations, in places like Walgreen's, buying bitcoins has never been easier. Serious stores like bitcoinstore.com which allow you to buy your next computer or tablet directly with bitcoins are also coming of age. As a result of all this, the average number of daily transactions has exploded from about 3,500 transactions/day (worth $500,000/day) a year ago to 40,000 transactions/day now (worth $3,000,000/day). Chart1 Chart2
3) Attention from big players.
In 2012 the hosting service wordpress.com, which is the 22nd most accessed website in the world (hosting the blogs of The New York Times, CNN, Reuters and many, many more) have started accepted bitcoin - and for all the right reasons:
"PayPal alone blocks access from over 60 countries, and many credit card companies have similar restrictions. Some are blocked for political reasons, some because of higher fraud rates, and some for other financial reasons. Whatever the reason, we don't think an individual blogger from Haiti, Ethiopia, or Kenya should have diminished access to the blogosphere because of payment issues they can't control. Our goal is to enable people, not block them."
Furthermore, the ECB published a serious 55 page report on "virtual currencies" - of course highly centered on bitcoin (as it is the only game in town, really) - showing how (even) central bankers are beginning to understand that bitcoin is not just a fad or Ponzi, but a real near-future contender in global market for monetary services.
4) The bitcoin business space has also started to attract venture capital in 2012. The service provider coinbase.com was funded by y-combinator and the bitcoin mining company, Coinlab, also received funding from Draper Associates and Geoff Entress. Mining hardware manufacturer, Butterflylabs, also attracted significant venture capital from an undisclosed source. Finally, Fred Wilson, principal of Union Square Ventures, has also expressed interest in Bitcoin a couple of times.
5) Many, many more developments in 2012. Partial list:
Bitcoin magazine started shipping;
Launch of The Bitcoin Foundation;
Blockchain.info launched an excellent hybrid ewallet service;
The Bitcoin conference in London was a success;
bitcoin-2-email service Coinapult;
in-game item exchange is rising;
Explosive growth in the bitcoin reddit forum; ...
Remember, there will only ever be 21 million bitcoins. Period.
The current "market cap" of all the bitcoins in circulation is just 140,000,000 in USD terms - and it is not yet "viral". If bitcoin goes "Gangnam style" you'd better be ready.
Perhaps it is wise to own a couple?