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I read this question on money.stackexchange, in which a user asks how to tax the speculation gain they (involuntarily) made. This guy (or girl) bought BTC for a few hundred USD a few years ago, lost the respective harddrive, and when they found it again, the BTC were (supposedly) worth a million or so USD.

So I am wondering, why did BTC appreciate so dramatically in other currencies? Is it just because of rising demand, in turn due to increasing trust in BTC?

As a corollary, could the BTC appreciation also be driven by a speculative bubble?

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Sorry if this is a very noob question.

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some reasons for the price-increase:

-bitcoin becomes an official currency in japan

-Australia Will Recognize Bitcoin as Money and Protect Bitcoin Businesses, No Taxes

-many people know/buy bitcon now, who did not know bitcoin some months ago (in many countries) caused by increasing media coverage

-bitcoin becomes an alternative currency in venezuela, Nigeria and some other countries caused by internal political problems

-the scaling problem seems not to be finally solved but the segwit-activation could improve the scaling-situation

-Russia’s Parliament is Discussing the Legalization of Bitcoin

-meanwhile the blockchain-technology is more established: there are no known hacks of the blockchain self

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Bitcoin is a digital asset that is impossible to counterfeit, easy to transfer globally, and scarce: the bitcoin supply is strictly limited to less than 21 million. Bitcoin is akin to cash—payments are irreversible, and since it's easy to verify that you got paid, you can get paid without needing to know who paid you. It's electronic cash, the native currency of the internet.

In a day and age, where commerce is increasingly global and online, surveillance capitalism is permeating all aspects of our society, and many nation states are trying to print themselves out of economic crises, the combination of the above properties appeals to various people for diverse reasons.

Over the past decade, the software used to generate and interact with the Bitcoin network has significantly matured. A thriving ecosystem of open source projects, businesses, users, and culture has sprung up. The growing adoption has only increased the utility of the network, which in turn has caused more and more people to try and get a slice of the finite amount of bitcoins offered on the market. Naturally, this network effect has resulted in an appreciating exchange rate, especially compared to heavily inflating national currencies.

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Price is speculative, and driven by supply/demand. It uses exchanges, just like stock or fiat currency exchange.

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  • So why did demand increase so dramatically? Is it speculation-driven?
    – henning
    Jul 11, 2017 at 5:08
  • @henning - Yes, since I just said it was speculative. There were many things going on over the last few months that drove price up. Speculation about the scaling efforts, certain governments "legalizing" it, certain organizations accepting it, etc.. Also, it seems there may have been a price pump scheme going on as well. Lots of reasons really, no single one of them is the answer.
    – Mr.Nobody
    Jul 11, 2017 at 5:49
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This question aged well :D One of the reasons is the massive puplic adoption and of course, the whales, the hedgefonds, the wallstreet big players who take their bite from the cake. You asked this question in a time of 1BTC = 2.5K$, but now we already had more than 65K for 1 Bitcoin already.

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When you see something go up and up, you may think it's a bubble, because nothing can grow forever, right? However, think about what you're measuring. You're measuring the price of BTC in U.S.dollar.

What if we measure it in an inverse way? Let's measure the US dollar in BTC value. Now what you see is that the dollar's value has decreased dramatically. The question you should ask yourself is: can it keep decreasing forever? And I would answer: it has being doing so since its creation.

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  • Not really, because the price increase is the same against a basket of different currencies.
    – henning
    Jul 10, 2017 at 16:15
  • most of the fiat currencies have had similar behaviours (always declining) over their entire existance
    – knocte
    Jul 10, 2017 at 16:19
  • Clearly, if the USD had plummeted by several orders of magnitude in the last four years, the world would look completely different.
    – henning
    Jul 10, 2017 at 16:25
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    This answer is technically correct, but it is not at all the reason for the recent exchange rate changes.
    – Pieter Wuille
    Jul 10, 2017 at 16:28
  • @PieterWuille he/she didn't ask about recent price moves
    – knocte
    Jul 10, 2017 at 16:35
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Many reasons.

The main one is the mining reward system was halved in 2016, as it also was in 2012.

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  • Why did this get downvoted? You are absolutely clueless about how bitcoin works, if you dismiss the mining reward system being halved was not one of (if not the main) reason bitcoin rose when it did.
    – lolololol ol
    Jul 12, 2017 at 1:35
  • I'm late to that party, however we prefer answers to have more explanation. Some people may have downvoted your post as "low quality".
    – Murch ♦
    Jul 12, 2017 at 6:14
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    Yep. That's why I gave it a -1 (although I'm clearly not alone). Please don't be discouraged or take offense, however. Your answer is correct, just not explained very well. In truth, it wasn't a great question to begin with. It's hard to give a good answer to this one.
    – Jestin
    Jul 12, 2017 at 23:56

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