Why Bitcoin’s price is at an all-time high

And how its value is determined.
Image: Chris Ratcliffe, Bloomberg

Bitcoin continues to rise, doubling in value in under a month to reach over $40 000 on Thursday – more than quadrupling in the past year, according to Bloomberg.

First launched in 2009 as a digital currency, Bitcoin was for a while used as digital money on the fringes of the economy.

It has since become mainstream. Today, it’s used almost exclusively as a kind of “digital gold”. That is to say, a scarce digital asset.

In response to the risk of economic collapse due to Covid, governments around the world have flooded global markets with money created by central banks, in order to boost spending and help save the economy.

But increasing the supply of money erodes its value and leads people to look for inflation-resistant assets to hold. In this climate, Bitcoin has become a hedge against looming inflation and poor returns on other types of assets.

What is Bitcoin?

Bitcoin, the world’s largest cryptocurrency by market capitalisation, has a current circulating supply of 18,590,300 bitcoins and a maximum supply of 21,000,000.

This limit is hard-coded into the Bitcoin protocol and can’t be changed. It creates artificial scarcity, which ensures the digital money increases in value over time.

Whereas government-issued currencies such as the Australian dollar can have their supply increased at will by central banks, Bitcoin has a fixed supply that can’t be inflated by political decisions.

Bitcoin is predominantly traded on online cryptocurrency exchanges, but can also be sent, received and stored in “digital wallets” on specific hardware or smartphone applications.

But perhaps the most groundbreaking aspect of the Bitcoin network is that it draws on the work of cryptographers and computer scientists to exist as a blockchain-based digital currency.

A public blockchain is an “immutable” database, which means the record of transaction history can’t be changed.

A functional and decentralised digital currency

Bitcoin is “decentralised”. In other words, it functions via a dispersed peer-to-peer network, rather than through a central authority such as a central bank.

And it does this through the participation of Bitcoin “miners”. This is anyone who chooses to run software to validate Bitcoin transactions on the blockchain. Typically, these people are actively engaged with cryptocurrency.

They are rewarded with bitcoins, more of which are created every 10 minutes. But the reward paid to miners halves every four years.

This gradual reduction was encoded into the network by creator Satoshi Nakamoto, who designed it this way to mimic the process of extracting actual gold — easier at first, but harder with time.

Because of this, the price is expected to rise to meet demand. But because future scarcity is known in advance (predictable at four-year intervals), the halving events tend to already be priced in. Bitcoin miners today earn 6.25 bitcoins for every block mined, down from 50 bitcoins in the early years. This creates an incentive to get involved early, as scarcity increases with time.

Therefore, massive surges and falls in price typically reflect changing demand conditions, such as a growing number of new institutional investors. More and more public companies are now investing in bitcoin.

But what function does Bitcoin provide for society that has people so invested?

Why does Bitcoin matter?

There are a few possible explanations as to why Bitcoin is now deemed significant by so many people.

  • It’s a “safe” asset

In the face of global uncertainty, buying bitcoins is a way for people to diversify their assets. Its market value can be compared
to that of another go-to asset that shines in times of trouble: gold.

Amid the turmoil of a global pandemic, an unconventional US presidential handover and geopolitical power shifts the world over, it’s possible more people view gold and Bitcoin as better alternatives to dollars.

  • It ties into privacy-oriented ideologies

Bitcoin (and cryptocurrency in general) is not politically and ideologically neutral. It was born of the internet era, one plagued with grave concerns for privacy.

Bitcoin’s intellectual and ideological origins are in the “cypherpunk” movement of the 1990s and early 2000s.

Records of online forums show it was advocated for as an anonymous digital currency that allowed people to interact online without being tracked by governments or corporations, offering an alternative for anyone who distrusts the Federal central banking system.

Perhaps the overt rise of digital surveillance in response to the Covid pandemic has further stoked fears about online privacy and security — again piquing the public’s interest in Bitcoin’s potential.

Why is Bitcoin booming?

Bitcoin’s recent boom in value comes down to a combination of three factors: ideology, social sentiment and hope.

But although these are variable factors, this doesn’t discredit the significance of the digital economy, interest in the technology as it matures and the influence of institutional investors in cryptocurrency, including Bitcoin.

Bitcoin is in an upward market trend, also known as “bull market” territory.

It was designed to increase in value over time through the rules Nakamoto wrote into its software code — which Bitcoin’s most outspoken advocates, known as “maximalists”, vehemently defend.

Imagining new futures

From a larger frame of reference, decentralised cryptocurrencies allow new ways to coordinate without the need for a central arbiter.

And decentralised blockchain-based networks don’t just enable digital money. Similar to ordinary smartphone apps, software developers around the world are building decentralised applications (DApps) on top of Bitcoin and other blockchain protocols.

They have introduced other cryptocurrencies, such as Ethereum, which are also open platforms for the public.

Other DApps include decentralised financial (DeFi) tools for prediction markets, cryptocurrency borrowing and lending, investing and crowd-funding.

Nakamoto’s audacious experiment in digital currency is working as intended. And what really deserves attention now is what this means for our digital, physical and social futures.

Jason Potts, Professor of Economics, RMIT University and Kelsie Nabben, Researcher / PhD Candidate, RMIT Blockchain Innovation Hub / Digital Ethnography Research Centre, RMIT University

This article is republished from The Conversation under a Creative Commons license. Read the original article.


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Fool’s Gold.

Interesting answer. Can you expand on that eg compare it to gold( which these days is essentially paper gold/contracts) ,USD ( why is the usd the reserve currency and why a 100 USD bill in your hand is worth more than 100 USD in the bank) , ZAR(!?!), Pierneef painting/rare coins/cowry shells/other collectibles, Shares (lets say 5 years back in time–then take Tesla,Steinhoff, Sasol,and to be fair, Amazon ,Alphabet), real estate esp the prime shopping centers and Clifton/San Francisco/New York. The world is changing in ways you cant imagine. The horse has bolted never to be caught again.

What is a worth while investment – obviously something that you gain more from than it costs.

How do you determine this?
-> Bond: A contractual agreement when your principal is paid with interest (which generates an INCOME).
-> Shares: Based on part ownership of the assets and liabilities and INCOME of a company. You can determine value over a 10 year period to see if you are “overpaying” for a share.
-> Property: An INCOME is generated from renting.

In the cases above; once your income exceeds your expenses… you are financially free.

-> Others: You require people to view your investment as more valuable over time, without INCOME being generated. This is commonly known as the Greater Fool ‘s theory. Also, in many cases you will need other *specialists* to tell you what it is worth…

There is no way that you can be financially free — as there is no income and you need to sell “assets” in-order to life (basic needs); which may be at times when the market is very depressed — meaning your value is not guaranteed.

The only fools around here are those who think that the market is getting it wrong…

You seem to know nothing of tulips…

i must be a fool for having made some serious money. the EC10 product offered by Easy Equities is a master stroke. Super easy to use

Congratulations; I guess you can stop working now … or was it just “pot luck” 😉

Etienne forgets that not everyone lost money in tulips…… A smart minority made serious cash and got out with it.

You seem to add no value to this conversation, besides for silly one liners… I remember when tulip mania was THE argument against bitcoin when it reached the $1000 ATH in 2013. It is now 7 years later and bitcoin is at a new ATH of $40k. Did tulips also make consistent new all time highs after the initial mania? Didn’t think so… Comparing bitcoin to tulips at this stage is ignorant at best. Do better

You seem to only read what you want to…

My tulips response was for a comment about how markets never gets the price wrong…


Fools gold. Have you ever thought of you being the fool for stay on the sideline of a deserted island watching the ship going past?

Fear of missing out (FOMO) ?!

EP puts a lot of store to income producing assets. This means other assets such as gold would not make the cut, since this relies on a “Greater Fool” scenario. Income from an asset is only one part of the story, the other is capital growth. Having a fantastic income producing asset which has total negative growth makes no sense (e.g. ZA property and preference shares).

If we could have a bit more humility and accept that we don’t know what future outcomes will be with absolute certainty, then we would probably be much better investors. I was certainly dead wrong with respect to Amazon and Google.

Spot on sir!

Lemon; we both know that a high payout ratio is bad… and that is what the SA property shares are mandated to do by legislation. As for preference shares – the quasi bond – lets not say much about that, since you are not as senior as bonds and get near zero equity growth as a result that you get paid “first”.

@Etienne Pretorius – You see, it would help if you attempt to explain your reasoning instead of using simple one liners. Anyone could misinterpret what you are trying to convey. Yes, of course the market can be wrong, but for it to be consistently wrong is highly unlikely.

Apparently the high street banks the world over are clamoring to understand block chain and bitcoin so that it does not eclipse them.

And therein lies the abiguity of the problem.

Blockchain as a technology. Great.

Bitcoin as an investment. Stupidity.

The two are very conflated.

Blockchain is not very difficult to understand.

Bitcoin as an investment is supposedly terribly complex to understand. The reason is that there is nothing apart from websites and published “consensus” that dictate movements. There is nothing underlying the currency that gives it any intrinsic value whatsoever.

The “investors” are being fleeced in much the same way as the emperor with his new clothes.


“There is nothing underlying the currency that gives it any intrinsic value whatsoever.”

I beg to differ. The bitcoin network is currently more powerful than the biggest 500 supercomputers in the world combined. This network allows users to make fast, irreversible, permissionless, borderless, semi-anonymous, censorship-resistant peer to peer transactions with no intermediaries required. For many, this is intrinsically valuable.

@Quarkiee87 also does not understand ownership… buying bitcoin does not make you part owner of the said “intrinsically valuable” network. Another fool’s argument… that participation is ownership…

@Etienne Pretorius is still making silly comments. At least they are not one liners anymore.

Where did I say anything about network ownership by the way? The bitcoin network is not owned by anyone. You can participate in the network by either running a full node and validating transactions, or by running a miner to include transactions from the mempool into the next block. I do, however, own my bitcoin because I am in control of the private keys – This has nothing to do with the network. Let me know if you need lessons…

A painting worth million has a very low intrinsic value as well. The value is what people assign to it.

@Quarkee87 … if you can own it; then there is no value… as you can not benefit from owning it — which is the basic requirement to call something an asset.

@Quarkiee87 wonderful in theory.

In practice, I haven’t seen terribly much happening with cryptocurrencies apart from “investments” and those using cryptocurrencies blurting about how much they’ve “made” and keeping very quiet about what they have lost. It’s great to have the value in digital numbers. It’s only useful when you can spend it.

Of course when the money goes out of your bank account, SARS knows. When the money comes back into your bank account, SARS knows. When you as a South African citizen (part of the SADC) receive money into any account of yours overseas, SARS knows because it is reported to the SARB as part of long-existing anti-money-laundering regulations.

A few weeks ago, SARS was reminding South Africans about their offshore money and investments that must be declared and taxes that will be paid on those.

Given that the SA government via SARS is looking for every cent it can possibly right now, it’s a matter of time before the praise-singers of cryptocurrency will be paying their taxes – even when if their net ultimately is negative – and penalties on those overdue.

@AP; tell that to the painter

Please see “speculation” vs “investment” ….


“Price is what you pay. Value is what you get.” – Buffett

Lol @ Ettiene Pretorius – I will humour you, but I think you need to research this tech a bit more…

“If you can own it then there is no value…”

Makes no sense but ok… maybe you meant if you CAN’T own it? Still makes no sense because I DO own bitcoin as I control the private keys for the UTXO’s. I don’t need to own part of the network to be a participant and transact value on it. Are my ZAR’s worthless because I don’t own part of the banking infrastructure? I don’t think so.

“this network’s utility is pathetic for a transaction processing … 12 minutes on average for October 2020.”

This is a decentralized network we are talking about. We could easily build a centralised system for instant payments, but this is not what bitoin is. We already have paypal, venmo, etc. for that. Even with bitcoin’s “pathetically slow processing” it still managed to consistently transfer more value than Paypal since 2018. For instant payments, you could also just use the lightning network which is build as a second layer on bitcoin.

@TheSpark I was addressing your statement about intrinsic value. My point is that others may find value in the Bitcoin network for different reasons, whether that be international payments, anonymity, censorship resistance or whatever. Just because you don’t see value there, doesn’t mean there isn’t value for someone else.

In terms of use cases, the investment case is the most popular yes. That is what you will read about here on moneyweb. It is not only useful for spending though, it can be used as collateral in lending, can be used as programmable money in smart contracts, etc. New use cases are being built each day, but the tech is still relatively young when compared to the legacy banking systems…

Of course you need to pay your taxes if you made profits from trading bitcoin… We can agree on that point.

So what is underlying the USD to it “intrinsic value”?

@Quarkiee87; yes … I was meaning “if you CAN’T own it..” and this is in reference to your “intrinsic value” argument of the network.

People use to use it BTC to buy coffee — when the network was in its infancy. This only means now that the network is not able to process transactions as fast as the early one —- even though there are more miners in it. This does not scale and hence the formation of a hard fork for bitcoin cash.

From a practical standpoint; I see bitcoin cash as a better “currency” based on transaction times. Yet the one which is more widely known demands a higher price.

So; only conclusion is this is following the same trend as the .COM boom and bust. The difference here is also the culture of hodl (https://en.m.wikipedia.org/wiki/Hodl) which implies that people will always believe that the price would be higher then they bought — as this is the ONLY way to make a profit.

Just like with the usf dollar… Right???

@ Etienne Pretorious – Bitcoin’s block times are roughly 10mins apart since inception and this has not changed since it was created. Bitcoin cash has exactly the same block time interval. How can it be faster? The lightning network, which is built on bitcoin as a second layer provides for instant transactions. You are clueless buddy…

Sorry, are we pumping up Elon Musk’s South Sea company again? My bad, this the digital pyramid scheme pump. Sorry. Anyone want to buy a Tulip at a steal?

The amount of ignorance in this comment is just astounding. Do you even know what the definition of a pyramid scheme is?

A scheme were the returns of investors are dependent on ever more investors joining the scheme. If new investors cease to join, then no new returns can be generated. At that point, when it’s stopped being a pyramid scheme, and it’s value stabilises (maybe at zero, maybe at some non negative value), then you could start using it as a currency. Until then, it’s just Tulip mania.

Well believe me the Young IT Guys are making a killing out of Bitcoin right now !!!

Bitcoin is not increasing in value but rather other currencies are depreciating.

People are sadly mistaken into thinking that the Blockchain technology behind Bitcoin and the cryptography itself should be viewed independently.

Blockchain is an age old concept before Bitcoin it was largely based on analogue format, Bitcoin’s creator simply digitalised it. The technology is very hard to process whilst only being able to hold about 1 megabyte worth of information.

POW or Proof Of Work is a self verification process built into Bitcoin, this is what makes it trust worthy and digital.

Furthermore even if it is replicated like so many ALT Coins have tried to do, Bitcoin is to the benefit to non other than the owners of it. Like Fiat currency ALT Coins have an owner and or creator who can alter the code and produce more of it rendering it’s store value as vulnerable, the ALT Coins basically replicated the printing press of sovereign countries and I will not be surprised when they get clamped down on.

The price of Bitcoin will continue to rise hitting $400,000.00 then maxing out at $1,000,000.00, again this is not the increase in value but rather the devaluation of trust in other currencies.

Furthermore there are and will be more effient ways to transfer value for small transactions using currencies and other crypto who have their value linked to Bitcoin, which will hopefully mean we see the separation from Banks and Politicians.

In computing terms it takes roughly 200,000 kWh to calculate a new bitcoin as of a month or so ago. If bitcoind are to be worth $400,000 the energy better be coming from fairy farts or something as expensive. Yes, it will take more and more kWh to get the next and the next, but that does not make the first one (which took a few kWh) as valuable as the very last one. Scarcity does not equal value.

Whilst it might consume so much energy how much energy does it for take for every day banking transactions of the same value?

Starting at the central banks and ending with employees of the bank together with the property and systems upkeep, there is a ton more energy consumed via fiat currency than bitcoin can and will every require.

This argument is a marginal narrative that the ill informed who fail to investigate the truth continue to make so as to further their own meaningless agenda.


You really really really do not want to start an argument about bitcoin’s speed and energy efficiency for transactions. bitcoin hundreds of thousands of times slower in transactions per second slower than visa and tens of millions of times in more expensive in transaction clearing.

You are ill-informed if you believe that banks (central or saving or commercial) only role is transactions and propping up those fake dollars and pounds.

“Bitcoin is not politically and ideologically neutral.”

Thanks Prof. Glad we got that sorted.

Perhaps the most fascinating aspect of the screaming rise in BC is the close reflection on global society and politics as a whole which are now in either panic mode or complete disregard of the way financial markets are developing at ever-increasing rates of flux.

Sooner or later things run out of steam and the consequences? Well, look at history.

For all the critics. I bought bitcoin at the peak of 2017 (driven by FOMO), lost 70% in value shortly after. My initial investment has now more than doubled (average out > 30%-40% growth per annum). No way the average stock investment can beat this. I do expect another correction (critics will call it a crash), but will stay invested and potentially consider buying more. Fine to be skeptical, suggest investing a bit during the next ‘crash’.

Yet; you are not able to retire… that is the test; not speculative gains…

If he made a R100k investment, which is now R200k, it doesn’t matter because he can’t retire? Another nonsensical comment…


“Over the years, a number of very smart people have learned the hard way that a long string of impressive numbers multiplied by a single zero always equals zero.” — Buffet

You need to be able to reliable repeat your “investment” to be able to make a livelihood from it.

Also; there is no compounding happening inside a bitcoin; which makes it inherent as an investment and at best a price speculation.

Inherent => inert

Etienne if I tripped yr current investment portfolio for u….. Would u be able to retire on the spot????……. If the answer is still no…. That’s got nothing to do with the investment class and all to do with u.
As of Xmas I’ve retired…. Largely due to the punt I took on sasol and bitcoin at the start of lock down….. I betted all in on both of them……… Life’s what u make of it…… Bitcoin retired me….

@Ally cat
You’re gambling and instead of buying lotto tickets you are using bitcoin and SASOL… that is not investing.

Good luck; enjoy retirement….

Apple was about (split adjusted) $40 in 2017 and is now $130 AND it paid a dividend every quarter AND it would have a volatility of a a tiny fraction of bitcoin in that period. I happen to own Apple shares but I am dead certain I can find you a dozen ordinary shares that beat bitcoin from 2017 to 2020.

Reading the comments above I can only shake my head.

@ the people who say that there is no value in Bitcoin because there is no actual underlying asset and @ the people who say that the value lies in the network and what it offers. You are both wrong. Any instrument being traded in only has the value assigned to it by the market, this is true for shares, futures, commodities and yes even Bitcoin.

If market sentiment turns against a company the share value of that company will plummet irrespective of the balance sheet of that company, the reverse is also true that a company’s share value will skyrocket if there is massive market buy in irrespective of how weak the balance sheet of that company may be.

My point is that there is no need for an actual underlying asset, what matters is market buy in and sentiment. I was also hesitant to invest in Bitcoin years ago because in my opinion the market buy in was not there. This however has changed over the last couple years and especially in 2020. There are some big institutional investors who have started buying into Bitcoin and a lot of retail investors have added Bitcoin to their portfolios as well.

Be careful using institutions as a way to validate an investment:
Latest example is Steinhoff.

You need to do independent analysis; and in your case you agreed it to be worth the risk. My conclusion is different.

Do not say that your investment is validated by x being part of it… this is bad advise.

I am not saying that investment in an instrument is validated by market buy in, but only that market buy in largely determines the trading price and not the underlying assets or lack thereof.

There is nothing that can validate an investment, each investor must implement an appropriate risk management strategy based on their risk/reward appetite.

If Bitcoin is too risky for people to invest in then that is what they should say and then I have no problem that is up to each investor to decide. But some here are arguing that the price is too high because of the lack of actual underlying assets and that is bad advice.

I agree with your view, however, my comments regarding network value were merely to demonstrate that where some don’t see any value, others may in fact see value, whether it be in the network or other properties of bitcoin.

The intrinsic value argument against bitcoin is actually quite silly. At the end of the day, all that matters is what the market is willing to pay for it – That is all.

And since nothing is worth a limitless price — there is a ceiling. Which means that bitcoin will reach a ceiling eventually. Now bitcoin on its own; by holding it; does not generate any economic value. Does not produce economic output; you only have the bitcoin scams, fear (of fiat) and greed to drive demand. That is a weak bar.

@ Etienne Pretorius – I agree, there will eventually be a ceiling once supply/demand reaches long term equilibrium.

Bitcoin is not an income producing asset – No one is claiming for it to be one. Other properties such as durability, portability, fungibility, scarcity, divisibility, cryptographic & computational security, immutability, censorship resistance, etc. all drive demand.


I say that it is simple greed driving the price — once that becomes an obstacle (people not willing to pay the deemed price); it will then fall back again. The risk is here is when is it safe to judge that peak has been reached…

These “other properties such as durability, portability, fungibility, scarcity, divisibility, cryptographic & computational security, immutability, censorship resistance, etc. all drive demand.” have a 0 dollar value for your average pensioner exchanging their life savings for MTI (or other scam) or drug traffickers etc (silk road elk).

@Etienne Pretorious – Greed is driving the price, yes. You are narrow minded to think that greed is the only driver of price though…

No one here is advising pensioners to put life savings in obvious pyramid schemes like MTI, etc.. There are many scams out there and it is not unique to bitcoin. By your own account, bitcoin’s other properties have 0 value to pensioners – Thank god the younger generations value things differently.


Please excuse my ignorance and naivete on this matter and the fact that I am no guru but if the supply side has reached approx 90 % of its possible end goal-21 million, and the price is at approx 40 000, AND as you admit below, it will have a ceiling, how can it possibly get to 400 000 as the pundits are claiming!? It does not have a carry NAV,so how does one know when to get in, what is going to happen when it reaches it’s ceiling and/or maximum stock level!? These can only be partly established if there were a “share register” and a lot more transparency as to who owns how many and at what level they bought! To me the so called “Whales” could own the vast majority at say 1 dollar and at that type of average breakeven an almost total collapse would be where around where everyone’s price(the value) could end up, or am I wrong!!! An investment case against a downright gamble is not much argument if my questions aren’t ridiculous!!?? In my time I remember the”aeroplane ticket” scheme, where the initiators made bucks and most everyone else lost, or am I being a pessimist here? Far cleverer people than me must be asking these questions but I don’t see them, and really should be if it were an investment, surely!? Tesla, Amazon, Apple, etc, have order books of note(future earnings), Bitcoins order book is short on pages left in the book, with only one book!! Like I said excuse me, but I cannot find these answers anywhere and am itching to invest, with invest being the key word, thanks.

One benefit of bitcoin (or crypto) as an asset is the ability to quickly (within seconds) move it from one country to another. Unlike a house (first need to find a buyer, then 2-3 months later the transfer occurs, then I need to wire the money out of the country), or equity on the JSE (first sell then withdraw funds then wire funds overseas).

With crypto if s*it hits the fan I can within seconds safeguard my assets without having the ANC get their dirty hands on it first!

So from a safety point of view I rank it #1, then cash, then equity and then property.

Under-rated comment. Censorship resistance is a massive advantage!

How much of the value of crypto is its anonymity and why should it be anonymous (other than to be attractive to smugglers, tax dodgers, corrupters and corrupted)?

Finding the next prime number would be more valuable to the necessary science of cryptography than throwing 200,000 kWh of computing power at calculating the next bitcoin. The reward for finding the next prime number is far less though.

Bitcoin is not anonymous, can be traced back with a bit of effort.Mixers can anonimize it somewhat. If you talk crime , smuggling , tax dodging, corruption —then look no further than our Mafia-state and the listed companies collaborating either overtly or by other means with them. Steinhoff gang, Wiese smuggling briefcase laden with high denomination Euros trans-customs(got caught–brown envelope was too small—then a bigger one changed hands—case never to be heard again.) Guptas , these blokes….used BANKS and FIAT .Cape flats druglords use Rands, if possible dollars. So this nonsense about bitcoin being dark money ….fabricated by Bankster_slyster_mafia-state machine. They hate competition or be left out

Bottom line is that people are making money whether you call it an asset or not, investing or speculating or whatever high level debate we want to have. I started in November, made money, cashed out and left my seed money. Even if lose all the money still left in my EC10 basket I lose nothing.

Bitcoin is here to stay. not much different from gold, fiat currency and share, except the supply cant be increased till infinity. we do get bubbles in all asset categories, Bitcoin is no exception. Once Bitcoin market cap expands it will become less volatile.

End of comments.




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