What drove bitcoin price up

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Bitcoin Prices in 2021: Here’s What Happened

The real costs of mining will thus be replicated, too. But as the success of government-issued fiat currencies shows, the universe of speculative bubbles is by no means restricted to cryptocurrencies such as bitcoin. After all, in a world with flexible prices, there is always an equilibrium where everyone believes the official fiat currency has no value—in which case it consequently has no value. Most government-issued fiat currencies appear to have stumbled into this fundamental equilibrium and stayed there. Keynesians ignore these multiple equilibria, viewing the price level and thus the price of money as uniquely determined by history and updated gradually through a mechanism like the Phillips curve, which posits a stable and inverse relationship between unexpected inflation and unemployment.

Regardless of which perspective one adopts, real-world hyperinflations—think of Weimar Germany or the recent cases of Venezuela and Zimbabwe—that effectively reduce the value of money to zero are examples not of nonfundamental equilibria, but rather of fundamental equilibria gone bad. In these cases, money stocks exploded, and the price level responded accordingly. Private cryptocurrencies and public fiat currencies have the same infinite range of possible equilibria.

The zero-price equilibrium is always a possibility, as is the unique, well-behaved fundamental equilibrium.


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Bitcoin clearly is exhibiting neither of these equilibria at the moment. What we have instead appears to be a variant of a nonfundamental explosive price equilibrium.

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It is a variant because it must allow for bitcoin to make a possible, if unexpected, jump from its current explosive price trajectory to either the nice fundamental equilibrium or the not-so-nice zero-price scenario. This multiple-equilibrium perspective doubtless makes it appear risky to invest in intrinsically valueless assets like bitcoin and other private cryptocurrencies. Illiquid market: Who owns bitcoin? The real world is of course not constrained by the range of possible equilibria supported by the mainstream economic theory outlined here.

But that makes bitcoin even riskier as an investment. But an exit by a single important player would likely have a similar impact in the opposite direction. This will not change with time. Bitcoin will continue to be an asset without intrinsic value whose market value can be anything or nothing. Only those with healthy risk appetites and a robust capacity to absorb losses should consider investing in it.

Willem H. Buiter is a visiting professor of international and public affairs at Columbia University. In January, it became an SEC reporting company , which meant more investors would be qualified to buy into the trusts. Investors who feel most comfortable in stocks and bonds clearly have some FOMO. Astonishingly, Musk signaled curiosity about the prospect.

bitcoin price: 5 reasons why bitcoin cryptocurrency prices are on the rise - The Economic Times

Other bitcoin landmarks have been tied to household brands that have attracted small, individual investors. Paypal announced that it would allow its customers to buy and sell bitcoin on its site in October , following the payments company Square and Robinhood, a stock trading platform, which both entered the cryptocurrency market two years ago. Last month, a study by Pantera Capital found that Paypal and Square users were snapping up the majority of new bitcoin entering the market daily, and presumably driving up the price, too.

Then, at the beginning of December, Visa joined forces with BlockFi to launch a credit card that rewards customers with bitcoin. Big firms that can afford to take chances may be warming up to digital coins, but it is still one of the riskiest investments out there.


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