Bitcoin Reaches $1,000 But Should You Get In Now?

If you were doubtful about buying Bitcoins a year ago then you lost the opportunity to increase your money by 100 times within just 12 months. Today a Bitcoin is valued at $1,000 but for how long is anybody’s guess. Nevertheless it is probably one of the best investments you could have made a year ago. However, you would be easily forgiven for missing the opportunity.

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Last year this time, there was still widespread doubt about the viability of Bitcoins. In fact it was only a relatively small percentage of the population that knew what a Bitcoin was or how it worked. Forking out even a mere $10 for a Bitcoin was seen as foolish by many as the talk about it being an online scam, Ponzi scheme or technology hype made its rounds.

But should you jump in now before the Bitcoin reaches even new heights? There is no way of knowing for sure where the Bitcoin will go tomorrow. Will it break the $2,000 mark or even reach the scoffed at $10,000 mark. A lot of the talk is from people who do not fully understand the system and armchair speculators with limited knowledge of the market forces.

One thing is for sure though – Bitcoins have started changing the way the world views alternative currencies. There are many reasons why the Bitcoin has essentially doubled in value within just 7 days. And as with real currencies, these factors are often out of the hand of the average Joe.

Why did Bitcoins jump in value?

First there is the influence of China in the whole equation as the number of yuan-based trades of Bitcoin have increased some 30 fold in the past 2 months. Then there is the recent nod of approval from the US Senate which has increased public confidence in the Bitcoin system. However, what many people fail to overlook is the simple economic forces of supply and demand.

The point where the quantity demanded meets the quantity supplied essentially determines what is known as the market equilibrium price – in this case the value of the Bitcoin. Since it is a digital currency that is not based on any commodity or precious metals like gold and neither is it linked to the economy of any country, Bitcoins are largely influenced in part by the economic forces of supply and demand.

If Bitcoins could be produced as easily as printing money these days then there would be no issue of supply. Similarly it would not have the allure that has partly driven recent demand. The key lies in the complexity of its production and the way the system limits the supply. This creates a safer investment for those wishing to put their money in Bitcoins, knowing that tomorrow there is no sudden surge in the currency in circulation due to quantitative easing.

Investing in Bitcoins today

All the hype around Bitcoins has contributed to its value today. But does this mean you should get in before it is too late? There is no correct answer for the individual user. There is concern that should the demand die down then the value would similarly decline. What is also important to bear in mind is that Bitcoins were intended to be an alternative currency to facilitate an easier exchange of money across borders with lower transaction fees.

It was never intended, or at least it does not seem to have been, an investment vehicle of sort. There is always the concern that the very speculation that has contributed to its rise in value could be its downfall. But if you have some cash to spare, and do tend to transact online with merchants who accept it then Bitcoins may be worthwhile – at least for the short term.

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