Bitcoin is once again on many investor’s minds after it hit an all-time high of over R500,000 on Tuesday 5 January.
To see how we got here, it is instructional to have a look at when Bitcoin was launched and how it started to gain traction in recent years.
Bitcoin was launched in January 2009 after its founder, Satoshi Nakamoto, created the Bitcoin network and mined the starting block of the chain.
In the early days, it was the playground of technology enthusiasts and failed to gain widespread adoption.
In 2010, programmer Laszlo Hanyecz famously bought two Papa John’s pizzas for 10,000 Bitcoin, which showed how worthless the digital currency was a decade ago.
In 2011, Bitcoin started to gain traction on the black market, such as Silk Road, because it made it possible to buy and sell products anonymously.
While all transactions are recorded and publicly visible, they are traced to an electronic address rather than a person. This suits the black market perfectly.
Over the next few years, Bitcoin started to attract the attention of more people and its price increased from $0.30 per bitcoin in January 2011 to $770 in January 2014.
The price of Bitcoin hovered around the $300 to $400 level in 2014 and 2015 before rapidly increasing to nearly $1,000 at the end of 2016.
2017 was the year in which Bitcoin grabbed the attention of the world, which saw its price increase to just under $20,000 in December 2017.
The Bitcoin craze of 2017 was compared with the Tulipmania, when the price of tulips reached unprecedented highs during the seventeenth century.
Just like the tulip prices which plummeted after Tulipmania, Bitcoin prices dropped to close to $3,000 the next year.
There is, however, a difference between Tulipmania and the Bitcoin craze. Bitcoin prices bounced back.
Bitcoin enjoyed a resurgence in early 2019, with prices increasing to around $14,000 in June, but declined again and started 2020 on $7,200.
Last year was a standout year for Bitcoin with prices peaking at over $29,000 in December 2020.
The Bitcoin rally continued in 2021 and Bitcoin hit an all-time high of over $35,000 this week.
From R2 to R514,000 in ten years
In January 2011, one Bitcoin cost $0.30. At the time the rand traded at R6.63 to the US dollar, which means a Bitcoin cost R1.99 at the time.
Fast forward ten years and the price per Bitcoin has increased to R514,000.
This raises the question of what we can expect from the cryptocurrency over the next year. Is it too late to make some money, or is there still scope for growth?
Fundstrat managing partner Tom Lee said in a CNBC interview that Bitcoin can show an even stronger performance in 2021 than what it did in 2020.
Lee said the conditions remain in place for a continued rally in Bitcoin over the next six to 12 months, which could push the price over $100,000.
JPMorgan Chase, in turn, predicted a long-term Bitcoin price target of over $146,000 if it succeeds in disrupting gold as a value store.
Bitcoin bulls Cameron and Tyler Winklevoss are even more optimistic, saying the cryptocurrency will replace gold and reach a market cap of around $9 trillion.
“We think Bitcoin could price one day at $500,000. We think it will be the best performing asset of this decade,” they said.
Others believe Bitcoin is in a bubble or even worthless.
Economist David Rosenberg recently told Bloomberg that Bitcoin is currently a “classic, follow-the-herd, extremely crowded trade. It’s in a massive bubble”.
The Berkshire Hathaway CEO and chairman, Warren Buffett said cryptocurrencies basically have no value and they don’t produce anything.
He added that he does not own any cryptocurrency like Bitcoin and never will.
Bitcoin price chart
The chart below, courtesy of Coindesk, shows the Bitcoin price over the last six years.