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Bitcoin Hits Boiling Point


Image source: MAX SAYPLAY / Shutterstock.com

What's going on?

Bitcoin broke $10,000 late on Tuesday – then jumped another 10% on Wednesday (tweet this) as the cryptocurrency increasingly appears to be accepted by mainstream investors.

What does this mean?

Bitcoin has increased almost tenfold in value this year, a remarkable climb for a digital currency that was once the preserve of tech enthusiasts and criminals. The causes of this rise aren’t totally clear – it may be partly down to citizens of closed economies, particularly China, looking to swap their home currency for an internationally linked store of value.

But as bitcoin’s value rises, so does interest from the suits. Bitcoin is now a legal payment method in Japan and major exchanges are poised to begin supporting the trade of bitcoin-linked investments. Wall Street is grappling with the growing adoption of the cryptocurrency, appearing unsure of quite how to respond (for now).

Why should I care?

For markets: The pace of bitcoin’s rise has accelerated.

The cryptocurrency is up more than 30% in the past week; its price chart looks like an ice hockey stick. In “normal” finance, such a meteoric rise would likely be a precursor to a short-term selloff, at the very least (indeed it sold off late on Wednesday before rebounding somewhat). But bitcoin, as its proponents often claim, could prove to be revolutionary and completely abnormal. Many major investors, including Warren Buffett, remain skeptical – but for now, the revolution shows no signs of slowing down.

For you personally: High transaction fees limit bitcoin’s usefulness as a payment mechanism – but not as a store of value.

The bitcoin network can only handle so many transactions at once, meaning that users are having to pay heftier transaction fees as demand for the currency increases. That makes paying for a $5 cup of coffee with bitcoin impractical (the fees would cost more) – but it doesn’t really diminish the cryptocurrency’s appeal as a way to store one’s wealth.

Originally posted as part of the Finimize daily email.

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