Bitcoin price breaks $4,000. Here’s why

Image: Reuters/Lucas Jackson
We may earn a commission from links on this page.

Bitcoin’s skyrocketing price is showing no signs of slowing. It’s currently trading for over $4,100 a coin, having broken the $4,000 mark in the early hours of Aug. 13. It has traded for as high as $4,225, according to the CoinDesk Bitcoin Price Index.  A prediction of $5,000 per bitcoin by years’ end, issued by Standpoint Research’s Ronnie Moas in July, now doesn’t seem so outlandish.

The co-author of a forthcoming book on valuing bitcoin and other cryptocurrencies, Chris Burniske, has pointed out that there’s a strong correlation between bitcoin’s price and the performance of the search term “bitcoin” on Google, as calculated by Google Trends. It’s not a perfect indicator: Google Trends sometimes lags and sometimes leads bitcoin’ price.

There are a few theories as to why bitcoin’s price is so buoyant:

  • It survived a contentious “hard fork” that saw the cryptocurrency split in two, spawning a new digital currency called “bitcoin cash.” But while bitcoin’s value has continued to climb, bitcoin cash has floundered.
  • It’s acting as a disaster hedge, much like gold, as global geopolitical tensions are ratcheting up. The US and North Korea are currently engaged in verbal jousting, with both sides issuing threats.
  • Institutional investors are lining up to get into the cryptocurrency markets. Forbes counted 15 new hedge funds poised to launch this year. Dozens of hedge funds are in the pipeline, according to trade newsletter Hedge Fund Alert(pdf). One partner at an accounting firm said the interest from clients has been “just crazy.”
  • Bitcoin continues to go mainstream. Earlier this week mutual funds giant Fidelity released a feature that allows its customers to view their bitcoin, ethereum, or litecoin holdings from within their Fidelity account. Twitter and Square co-founder Jack Dorsey has also talked up bitcoin’s potential as the “the next big unlock” this week.

Bitcoin analyst Burniske has a word of warning for people piling into bitcoin: The correction could be severe.