The Bitcoin price has just broken the all-time high of $31.9099 that it set on June 9, 2011 on MtGox. After a persistent, one-and-a-half month rally from $13 to $28, followed by nearly two weeks of bumping up against $30 and then hovering around the $28-$31.5 range, the bulls have finally won, and the currency struck a new high of $31.94 at 14:40 GMT on February 27 before quickly breaking past $32. The final rise was precipitated by a single buy order of over $100,000 USD, quickly reversing a temporary drop from $31.5 to $30.9 and leading to the price bumping against $31.89 for half an hour before finally breaking through.
The event is a historic one for Bitcoin. When the initial Bitcoin bubble of summer 2011 collapsed, a number of media sources quickly spread the message that Bitcoin was a foolish crypto-anarchist dream and a fad that failed, and it was time to move on to more “legitimate” products backed by the full support of the banking establishment. Forbes’ Tim Worstall wrote as early as late June that “that’s the end of Bitcoin, then” Technology writer Timothy B Lee (not to be confused with Tim Berners-Lee, inventor of the World Wide Web) wrote an article on the Bitcoin crash in August, ending with the words “I suspect it’s terminal.” Wired ran an article in November which, although not as bleak, was nevertheless entitled “The Rise And Fall of Bitcoin“. Doug Casey, a celebrated libertarian precious metals guru, released a lengthy interview in which he described Bitcoin as “probably a dead duck” that was bound to collapse because of its lack of physical backing, and offered GoldMoney as an alternative.
After hitting bottom at $1.994 in November, however, Bitcoin simply refused to die. The price bounced back to a high of $7.22 in January 2012 before settling down at $4.90, and news slowly began to once again turn positive. In January Bitcoin was featured in an episode of The Good Wife, and in April Reuters came out with an article entitled “Bitcoin, the City Trader’s Anarchic New Toy”. In June came a number of further articles, although the collapse of Bitcoin Savings and Trust and the shutdown of the Global Bitcoin Stock Exchange led to a new period of pessimism in the fall. However, that period turned out to be a brief one, as the announcement of WordPress accepting Bitcoin in early November broke the downward trend, and Bitcoin Central’s banking partnership deal in December cemented the new paradigm. Finally, in January Bitcoin truly started to take off. A series of positive announcements, including unprecendented profits by Bitcoin gambling site SatoshiDice, large-scale underlying adoption and the arrival of ASIC mining hardware chips, sent the price on a sudden course upward, and in February Reddit and Mega accepting Bitcoin cemented the new paradigm.
What happened? The answer is simple: the Gartner Hype Cycle. In 1995, the IT research firm Gartner noticed that many new technologies tend to follow a specific five-stage patten in their adoption: (1) the initial technology trigger, (2) a “peak of inflated expectations” as people get excited about all of the possibilities that the new technology could potentially offer, (3) a “trough of disillusionment” as the technology fails to live up to its original expectations and its more fickle supporters abandon it to move on to the next great idea, (4) a “slope of enlightenment” as the community realizes that the trough of disillusionment was just as overblown as the initial peak, and (5) a “plateau of productivity” where people discover what the uses are where the technology can truly shine and apply it to maximum benefit. The graph of the Hype Cycle, as shown by Wikipedia, looks like this:
Looking at Bitcoin’s price between March 2011 and December 2012, one can see an almost perfect overlap with the cycle, albeit with a slower, two-stage slope of enlightenment.
Now, however, Bitcoin is rising for a second time, and it is quite possible that a new hype cycle will begin as Bitcoin truly breaks into the mainstream, and new groups of more professional speculators and investors seize upon the currency as a stock.
For those who dismissed Bitcoin as a pump-and-dump, a fad or a quack, now is the time to repent. Timothy B Lee already has, and we in the cryptocurrency community gladly welcome him. To Doug Casey, Tim Worstall and the others who have disparaged Bitcoin in the past, this moment is as good a time as any to re-evaluate your opinions. As for the future, at this point Bitcoin is a wild card. The original major bubble in April 2011 started when Bitcoin broke past its previous February high of $1.12; now that Bitcoin has broken past $32 it can go anywhere. Some have predicted $45; others $100, and still others believe that the bubble is only starting, and we may see a meteoric as great in magnitude as the one in 2011 – that is, by June 2013 we will hit $1000. Unlikely, perhaps, but in April 2011 no one was predicting $30. On the other hand, the price may well simply continue its current linear trend, or even stabilize or drop. Regardless of what happens, according to almost every single indicator (with Google Trends volume being the exception) Bitcoin is far stronger now than it was in 2011, and is poised to only get stronger. Now is the time for Bitcoin to truly shine.