Bitcoins were valued at $2 by late 2011; a few days ago, values reached the highest ever at $40
aljazeera.com / By Nicolas Mendoza / March 13, 2013, 11:37
Although there is still the possibility of a volatile market, the Bitcoin ecosystem looks more promising than ever.
About a year ago I wrote an article, published on this site, titled “Understanding Bitcoin“. It was an attempt at introducing Bitcoin technology and analysing its social implications. Now Bitcoin markets are trading at record prices of over $40. This increase, along with a series of recent developments, marks a new overall state of affairs for this project. To make better sense – beyond the mere market numbers – of the current state of the Bitcoin economy, it is worth it to make a brief recount of the way Bitcoin has evolved in recent months.
Perhaps the most obvious milestone reached during the last few days is the surpassing of the previous top valuation of U$31.9, achieved by mid-2011. Bitcoin now trades at historically high prices above U$40 per coin. Is the bubble about to burst again? Those who expect a similar crash ought to consider that bitcoins from 2011 are hardly like bitcoins of 2013.
Let’s recap. In early 2011, the project started to get attention beyond a very reduced circle of people interested in cryptography. Due to its design (scarcity and floating value), bitcoins do tend to be the object of speculation, and a few online news articles was all it took at the time to drive prices, within a few weeks, from zero to over $30 per coin. However, there was no backing economic substance, no actual economic activity, markets with significant depth or use for the currency. This is why at the slightest sign of trouble – in this case, the hack of one of the exchanges – investors backed away, and the bubble popped. By late 2011, the price had retreated back to $2.