The Rise of Cryptocurrency

The rise of cryptocurrency is nothing short of a miracle. Originally, when Bitcoin was first released in 2009 it was virtually worthless. A single Bitcoin went for around $.001 - and that was if you could even find someone to buy it. The first users of Bitcoin were enthusiasts, computer scientists and cryptographers passionate about the technology. There is a famous story about a man named Laszlo Hanyecz who purchased a pizza with 10,000 bitcoin back in 2010 (over $25 million today). Hope that was one really good pizza!

The question many ask is how a digital currency, once worth less than a drachma, somehow became the $3,000 giant it is today? There are a lot of factors which contributed to its rise, though most prevalent was actually its role in an online black market called the Silk Road. That's right, Bitcoin got where it is today largely in part due to drug dealers and criminals who found it to be an easy and convenient way to sell illicit products (and services) on the internet.

There were many other factors though, of course. Wikileaks began accepting Bitcoin for donations in 2011. In 2012, Bitcoin began making passing appearances on television shows. On CNBC's Mad Money, the host Jim Cramer made a whole sketch all about Bitcoin. The increase in public awareness set Bitcoin up for its first major flight in 2013. However, the real coverage began upon the collapse of the Silk Road. The online marketplace which had served as the hub for any and all illicit online activity received heavy media coverage after hearing word that the FBI had shut it down and seized over 600,000 Bitcoin. However negative the story may sound, keep in mind there is "no such thing as bad publicity." Bitcoin finally got its time in the limelight.

One of the most important events of 2013 turned out to be the Cyprus banking crisis. In March of that year, the government of Cyprus announced a bail-in for banks. After the bail-in was announced people rushed to their banks to withdraw funds and many of them decided to put their money into Bitcoin, where the government couldn't touch it. The price tripled in a matter of days and the public took notice. After peaking at $200 and stabilizing shortly after, it seemed to be an isolated incident at first. But the meteoric rise in the digital assets value caught the attention of some big players who began to examine it as a serious investment vehicle.

The emergence of the Bitcoin market in China ultimately led to Bitcoins' meteoric rise in late 2013. A man named Guillaume Babin-Tremblay noticed there were serious inconsistencies between trading prices on U.S. exchanges in relation to China. China's high demand for Bitcoin was fueled by their lack of access to overseas investments and an inconvenient combination of their real estate and stock market bubbles. Having one of the highest saving rates in the world and no where to "safe" to invest, Bitcoin became all the craze in China. The Chinese exchanges were trading Bitcoin at nearly double the price. The opportunity for reverse arbitrage became very apparent. Thanks to the combination of China's high demand and heavy media coverage of the Silk Road Bitcoin bust, the price of the digital currency began to soar as speculation ran wild. People from all over the world began buying up as much Bitcoin as they could, hoping to resell to Chinese consumers at a hefty premium.

In December of 2013, the Bitcoin bubble burst upon news that the Chinese government announced they would begin cracking down on the digital currency. The price of a Bitcoin fell more than 50% the same week. However, Bitcoin ended up stabilizing at a much higher price than it had been at prior to the Chinese investor fueled bubble. The drastic rise in Bitcoin's price, which at one point reached $1,200 per coin, put the digital currency in the headlines. It was a media frenzy, Bitcoin gained massive exposure in 2013.

The Bitcoin craze slowed greatly through 2014-2017. But during that time, many competitors to Bitcoin began to appear. New cryptocurrencies came out with innovative applications of Bitcoins underlying blockchain technology. By far the most significant new cryptocurrency released came in late 2015, Ethereum. Capable of doing everything Bitcoin could and then some, Ethereum opened up blockchain technology to its fullest extent: Smart contacts. Ethereum smart contracts enabled the development of decentralized applications that could be built on top of the Ethereum blockchain. After more than a year in relative obscurity, Ethereum started gaining attention as many new assets were developed on their network. Ethereum helped bring a lot of serious investors to the table, it served as so much more than just a digital payment system, it was capable of doing things we had never even imagined before.

In 2017, Japan finally legalized Bitcoin, creating a lot of new demand. Bitcoin acceptance had greatly increased in other countries. At this time, many reliable predictions were made by well-renowned experts who estimated Bitcoin could reach as high as $500,000 by 2030. Finally, review by the SEC of the Bitcoin ETF proposed by the Winklevoss twins gave real credibility to the investment like never before. Bitcoin starting rising rapidly in mid-2017 and the press found themselves once again consumed with the digital asset. Upon the announcement of the Enterprise Ethereum Alliance between the Ethereum Foundation, Microsoft, and J.P. Morgan Chase the focus shifted from being all about Bitcoin. The alliance promised to work together to create business initiatives and development on the Ethereum Network. All of the news caught the attention of some major players. The entry of institutional investors was a serious turning point, the cryptocurrency markets nearly tripled in size almost overnight. The market cap rose from $29B to $86B in just 2 weeks. People began exploring all sorts of alternative cryptocurrency investments, many of which had remained in relative obscurity until this point. Some of these currencies shot up into the billions in a matter of days. Ripple's market cap rose from just $300M to over $2.2B in less than three days.

It is safe to say cryptocurrency has entered the mainstream, but what is interesting is that although everyone knows it exists by this point, the vast majority of people have yet to invest or so much as researched the subject. With a total market cap hovering around $100B, there is still a lot of room for cryptocurrency to grow. Large institutions and everyday investors have yet to touch the crypto space, but that may change soon. The first Bitcoin ETF may soon make its way to the NYSE, the Enterprise Ethereum Alliance is expanding, the SEC has stepped in to regulate certain aspects of the emerging industry, and many countries in which Bitcoin has been illegal are considering legalizing the digital currency very soon. All the factors that have led to the rise of cryptocurrency are certainly amazing, but there is still so much to come.