You may have heard of a controversial new currency named “Bitcoin“, most well known for it’s independence from government and reliance on an anonymous peer to peer network.
This past month the price for one Bitcoin rose above the $32 high water mark set in 2011. And it has nearly tripled to $33 from the $13.50 price at the start of the year. We are seeing this growth because the number of Bitcoins in circulation is capped and as a result the price will continue to rise as long as the number of transactions continues to grow rapidly. This is simple economics: There is an upward pressure on pricing due to a decrease in supply. Most importantly, the price elasticity of supply is inelastic due to the controlled release of additional Bitcoins into the market. So, over the short term the inflation of Bitcoin will likely continue.
The easiest way to buy and sell Bitcoins is through Coinbase, and they’re definitely seeing the complementary growth.
The growth in Coinbase transactions parallels the rise in Bitcoin prices.
It’s obvious that this new currency is becoming more and more popular; companies such as WordPress and Reddit already accept Bitcoins as an alternative payment method. This type of distribution is not too far off what was seen a decade ago when big retailers started accepting PayPal.
Critics claim Bitcoin can not sustain rapid growth for the long term given that Bitcoin’s are mainly being used for illicit purposes. But if this trend continues where we see major companies tagging on, it’s certain that the Bitcoins will continue to grow in value given their limited number.
Here’s my test investment so far:
I purchased 7 Bitcoins on December 31st, about a $100 value.
Current market rate for 7 Bitcoins: $235
I was impressed to see my small test run had more than doubled in value over the course of just 60 days. If you’re interested in doing this on a larger scale, do your research, and remember timing is everything in finance!’
Update March 5th:
NameCheap now accepts Bitcoin for payments. This is yet another example of NameCheap supporting efforts for pioneering online innovation and freedom.