3 Reasons Why Bitcoin Broke $2,000

May 21, 2017

The digital currency bitcoin is on another remarkable run, soaring nearly 65% in the last month, and smashing the symbolic $2,000 mark for the first time ever this week. Bitcoin has gone on tears in the past, but never quite like this.

So what's behind the latest bull run? It's hard to say for sure, since bitcoin is so unpredictable, but here are three factors that are contributing to bitcoin's boom:

1. The Worldwide Demand for Digital Currency

The $2,000 bitcoin milestone comes amid a larger trend of investors clamoring for crypto-currency of all sorts. While digital money was once seen as the province of cranks and computers geeks, it's now so mainstream that investors see it as a new asset class and are creating hundred million dollar hedge funds to acquire it.

Meanwhile, others see digital currencies as an asset like gold, which can hold its value amid times of government instability. Recent political upheaval in Brazil and the United States, which led to drops in the dollar and the real, may have contributed to the recent uptick in bitcoin buying.

Finally, bitcoin may be benefiting indirectly from a recent explosion in the value of other digital currencies like Lumens, Ethereum and Litecoin. While it's possible to buy these currencies with dollars or other traditional currencies, it's often simpler to use bitcoins (which is the easiest digital currency to acquire) to buy them. In other words, more people may be buying bitcoin as a vehicle to invest in more exotic currencies.

2. Japan and China

At the start of April, regulators in Japan introduced new rules that treated bitcoin less like an outlaw currency and more as a part of the banking system. That change led to a burst of trading activity in the country investors rushed to swap yen for bitcoin. The effect on price has been predicable.

And in China, where the authorities have long had a love-hate relation with bitcoin, it appears the country is growing more tolerant once again. As CNBC reported, analysts are pointing to a big drop in the difference in bitcoin prices between U.S. and Chinese exchanges. This suggests bitcoin-related investments in China are less risky:

In other words, a whole lot of Asian investment is causing bitcoin to soar.

3. Hype and Hoopla

If you've followed bitcoin for a while, you know the currency is prone to spectacular crashes. The crashes followed flurries of press reports about the value of bitcoin, which created a hype cycle, and in turn drew the attention of mainstream investors who helped inflate the price.

It sure feels like we're in the midst of a hype cycle now. Social media is buzzing about the incredible surge in the value of crypto-currency assets. And this year's edition of Consensus, a three-day trade show in New York, promises to be the splashiest yet with big names like IBM and Microsoft appearing alongside a long list of venture capital firms.

There a lot of good reasons for the hype—not least because digital currency and blockchain technology (an online ledger system that relies on multiple computers) has gone mainstream—but also reasons for caution. As with past hype cycles, there are far more people cheering for bitcoin than against it. This is partly because there are few people who truly understand digital currency, and most of those who do own a large amount of it, so skeptics are in short supply.

As of Sunday afternoon, the value of a bitcoin was $2,020, according to Coinbase.

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