What’s causing the price of bitcoins to rise so dramatically? I get asked this question many times a day from friends and colleagues wondering what’s driving the price of bitcoins. My favourite response is the old trader’s adage, “more buyers than sellers”. Even though this response is a joke, the basic fundamentals are true (I guess that’s what makes it an “adage”). The reason why the bitcoin price is rising is because there are a lot more buyers than sellers. An increasing number of people around the world are buying bitcoins, and by most back of the napkin estimates, only a small fraction of the world’s population has any bitcoin yet, so we might be only scratching the surface of the bitcoin price rise.
I think its only a matter of time until a wave of new crypto currency users come from countries with failed governments. There are lots of examples of this happening already such as the number of luxury goods shops accepting bitcoin in popular tourist destinations in France and Switzerland, they are being used by the elite from African and middle eastern countries. There are more than 1 billion people living in India and their governments are ineffective and wasteful, they are subject to wild banking laws and black markets make up such a large part of the Indian economy, it only makes sense that many people in India will move away from using their government currency and use crypto currencies instead. The government will have to spend a lot of resources and restrict the freedoms of citizens to access the internet in order to try and stop this trend.
Where could the price of bitcoin go? Anywhere the market decides. Nobody is in control of the bitcoin price, and this is part of its appeal. If the bitcoin blockchain cannot provide value to users, its market price will eventually fall, maybe it will crash, but whether its bitcoin or some of the many other crypto currencies, the idea of blockchains has been discovered, and this cannot be unlearned.
Those of us with bitcoins should be less concerned about whether the price rises or falls, and more concerned about what governments will do about it. As the crypto economies grow, they will erode the power of governments to tax residents who do not disclose their crypto income/assets. And there will be increasing arms race between the most sophisticated members of rich countries and their own governments who try to tax their crypto currency profits.