
Ask HN: What is the reason behind the rise of cryptocurrency? - phoe17
I have been following the rise of value but I am still unsure about reason behind its rise.<p>Most of the discussions point on crypto sub-reddits are about buying and HODL-ing. I sort of understand that people are investing hoping someone (A greater fool?) buys it from them at a higher value.Holding also discourages people from using it in exchange for goods and services. Isn&#x27;t that defeating the purpose of a currency?<p>Also, what justifies Bitcoin&#x27;s value at ~17k ?<p>I am interested in reading any neutral posts or articles analysing the rise of Crypto and where it is headed.
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bufferoverflow
There are different reasons for the rise. The main ones I see are:

1) speculation

2) attractive store of value due to the deflationary nature (note that not all
cryptocurrencies are deflationary)

3) True limited supply that's mathematically guaranteed. Gold supply, for
instance, is not limited in any practical sense, there are trillions of tons
of it in our Galaxy, it's all a matter of technological advanvements of its
extraction.

4) secure transactions that can't be reversed (though you can use escrows if
you want the reverse option)

5) low transaction fees (except for bitcoin)

6) inability of anyone to stop you from moving the money in your possession.
See 'paypal sucks' stories, civil forfeiture.

7) works extremely well on the internet

8) fast transaction settlement

9) works over almost any protocol, you can technically manage bitcoins with a
dumb phone over SMS

10) banking for those who doesn't have access to banking

11) libertarian aspect - no government control

The Bitcoin price is justified by the free market. People want it, they are
willing to pay for it. That's true of any currency value, btw, since there are
no government currencies pegged to gold, it's all based on whether people
believe in the currency. When they stop believing, we get Zimbabwean dollar,
Venezuelan Bolivar, USSR Ruble, Argentinian peso.

~~~
alexasmyths
Points #1 and #2 are contradictory.

A _speculative_ instrument is the opposite of a _store of value_.

A 'store of value' is like real estate - low-risk, probably low-return, but
you can park your money there and in X years, it's going to mostly be there.
US Bonds.

Your bank account, i.e. USD is a decent, though not great 'store of value'.
Your USD is not going to go $0 overnight.

Speculative investments are there to generate return almost always involve
more risk.

BTC could go to $0 tomorrow. Suppose the US Gov. makes everyone legally
declare their BTC assets as assets and they are subject to taxation etc.. That
might pull the plug on BTC, but worse, cause a stampede crash in a highly
volatile situation. There are many reasons that a rush-to-exit could happen
for BTC. So - speculation - not a 'store of value'

These other fetures of BTC may have been important early on but they are not
what gives it value.

Because nobody is using BTC as a currency, almost none of those points are
pragmatically relevant - yes - in theory, they need to exist to have gotten it
off the ground.

~~~
paulhodge
They're different narratives but I think they are both in play.

If you ask a Bitcoin investor about why they invested, then they might explain
it as a store of value, "digital gold", or etc. With that narrative, Bitcoin
makes sense in the world, and isn't just a fad. And the erratic price is just
a growing pain, it'll stabilize eventually.

But of course, the _real_ reason many people are buying BTC right now is
because of the speculative nature, they want to get rich quick. If someone's
investment in BTC is significantly larger than their investment in bonds,
commodities, real estate, etc, then "it's a store of value" is probably not
the real reason they're buying BTC.

~~~
phoe17
> If someone's investment in BTC is significantly larger than their investment
> in bonds, commodities, real estate, etc, then "it's a store of value" is
> probably not the real reason they're buying BTC.

Are there any good articles or blog posts analysing this trend?

------
cletus
Personally I see the three biggest factors as:

1\. Rampant speculation. Note that a relatively few "investors" hold a fairly
large percentage of BTC in particular.

2\. Capital controls and wealth protection in certain countries (most notably
China and Russia); and

3\. Illegal activity (including money laundering).

If I had to guess, probably in that order (from high to low). The seedy side
of this (3) is obvious and (to my detriment) is why I steered clear.

Cryptos may have been envisioned as an alternative currency but it's clear
they're behaving far more like an asset class and that they have some bad
properties for a currency to have, most notably the deflationary aspect and
the inability to manage the money supply (which some will view as a positive).

It's really anyone's guess what happens from here. Thing is though, even
though an individual coin is limited in supply my personal belief is that this
will even out when people realize that different coins are essentially
commodities so new ICOs are what will meet demand. I'm not sure when we'll get
there however.

~~~
jbob2000
The seedy side of crypto is 100% the reason I am staying away. One of it's
biggest benefits (lack of institutional control) is also it's biggest
detraction; anyone who is trying to avoid law enforcement is using it. When
you purchase bitcoins, there's probably a good chance you are funding: hackers
who are holding systems hostage; child pornography/prostitution rings; illegal
arms and drug dealers; scammers; etc. etc.

The banking system, for all its issues, makes collecting and moving large
amounts money around very difficult. We are going to quickly find out that
that is a Good Thing.

I really think the debate about crypto has been poisoned with malicious
intent. We all sit behind our computers thinking the people on the other end
are just like us, with wonderful ideas for a technological revolution, but we
have no clue what the real motives are behind its push.

~~~
rdm_blackhole
This argument is not valid.

What about the drug dealers selling their stuff for cash?

I can do the same argument about fiat money. What about the tax dodgers
crossing borders with suitcases full of cash that will end up in some offshore
bank never to be seen again? The fact that some people use bitcoin to launder
money is no different than a government paying a ransom to free a hostage in a
hostile country.

`The banking system, for all its issues, makes collecting and moving large
amounts money around very difficult`

That is why cryptocurrencies exist in the first place!

If I have money, that I have already paid taxes on, shouldn't I be free to do
whatever I want with it without having to answer to a bank or a government
like I am some kind of child that needs to be chaperoned? Why can't I use what
is mine without restrictions?

Banks don't mind doing their dirty business deals behind closed doors and will
deter anyone to look into their questionable business practices but for some
reason, me, the average Joe who doesn't have lawyers on retainer to keep
everybody at bay, I should be required to leave my money in a bank and hope
that the banks are not going to lose it all like they did in 2008?

That doesn't make sense to me.

~~~
jbob2000
> I can do the same argument about fiat money. What about the tax dodgers
> crossing borders with suitcases full of cash that will end up in some
> offshore bank never to be seen again?

It's a felony to do that with more than $10,000 and if you wanted to move any
serious amount of money (millions) you'd need a small truck. You risk getting
robbed moving that kind of cash.

>>`The banking system, for all its issues, makes collecting and moving large
amounts money around very difficult` >That is why cryptocurrencies exist in
the first place!

You're missing my point; _It 's a good thing that moving large amounts of
money is difficult_. I can't see any legitimate reason why someone would want
to move tons of money around, just write a cheque or do a bank transfer of
some sort.

If bitcoin becomes the new currency, you aren't any more free than you were
under the banks, you're just beholden to a different master - the people who
maintain the cryptocurrency networks.

~~~
Rmilb
>you aren't any more free than you were under the banks, you're just beholden
to a different master - the people who maintain the cryptocurrency networks.

Exactly. Bitcoin just like fiat is backed by trust in those who run the
network. Bitcoin doesn't solve many problems as a store of value right now if
you trust the government not to print trillions like they did after the 2009
crisis.

If you don't trust the developers, don't trust the coin.

------
shawabawa3
Gold's market cap is $8 trillion.

90+% of that value is as a store of value and speculation.

Cryptocurrencies could do that job better. Even with the high fees atm for
bitcoin, it's still a hell of a lot cheaper than shipping gold

~~~
phoe17
I have a read a few people comparing Bitcoin's store of value to that of
Gold's. That analogy does make sense but they started off by calling Bitcoin a
new form of currency, have we given up on that use-case?

Also, Gold fluctuates a lot less and the exchange of Gold is often not
anonymous. If I am looking for a place to put my savings why would I choose an
anonymous market that is highly volatile?

I understand that this logic is negated by Bitcoin's current value.

------
xwvvvvwx
Bitcoin is worth $17k because thats how much someone will pay for it.

Right now the blockchain space is in a clear bubble. A lot of people (many
uninformed) see the price rise and don't want to miss out. This drives the
price higher.

At some point there will be a correction. Nobody knows the timing or size. My
guess would be that this will not happen until we see the failure of a major
blockchain.

With that said blockchains are a remarkably powerful new tool and if they can
be sensibly scaled they will be extremely impactful. Blockchains allow for the
creation of self sustaining, trustless, autonomous marketplaces. A lot of
intermediaries are about to be automated away by these protocols (think about
platforms like Airbnb or Uber).

Some useful parallels can be drawn with the dot com bubble. A lot of
valuations were totally unjustified, but you would have done very well if you
bought and held Amazon stock in 1997 (66,600%).

A more interesting question is whether Bitcoin is the Amazon or MySpace of the
blockchain revolution.

I have found the following resources to be very instructive:

\- The original Bitcoin whitepaper:
[https://bitcoin.org/bitcoin.pdf](https://bitcoin.org/bitcoin.pdf)

\- Mastering Bitcoin:
[https://github.com/bitcoinbook/bitcoinbook](https://github.com/bitcoinbook/bitcoinbook)

\- The Ethereum wiki:
[https://github.com/ethereum/wiki/wiki](https://github.com/ethereum/wiki/wiki)

\- The Bitcoin Core mailing list:
[https://lists.linuxfoundation.org/mailman/listinfo/bitcoin-d...](https://lists.linuxfoundation.org/mailman/listinfo/bitcoin-
dev)

------
Finnucane
>Also, what justifies Bitcoin's value at ~17k ?

Rich people in non-democratic countries worried about currency export controls
and sanctions. Other methods of parking money externally (real estate, etc.)
are subject to restriction and seizure.

~~~
phoe17
Isn't the high volatility a major drawback to this use-case?

~~~
__sha3d2
The volatility is supposedly temporary

------
venganesh
No one knows to be exact. BTW, that's "Cryptocurrencies" not Crypto.

~~~
starshadowx2
Both terms are widely used and are correct.

~~~
malikNF
While true, it would be really great (although I think its too late) if people
would use the term "Cryptocurrencies" instead of "Crypto", since Crypto used
to mean cryptography.

Pretty much its just like the hacker v cracker debate.

~~~
starshadowx2
"the hacker v cracker debate" is (in my mind at least) over. There were and
are many people who don't like the way the word "hacker" is used, but so what?
Language changes, slang evolves. "Crypto" used to only mean one thing, now it
means two. What's really the big deal about that?

------
cameldrv
My interpretation is that there are multiple factors at play on the demand
side:

1\. Initially drug, and other illicit item dealing. It's hard to process
payments for an illegal or risky business. Bitcoin (mostly) has no one to
reject you as a customer. I would not be surprised if major smuggling networks
were starting to use Bitcoin, as it's seemingly much easier and less risky
than carrying huge wads of cash across borders.

2\. Circumvention of capital controls and economic sanctions. People in
Argentina, Zimbabwe, Russia, Iran, Venezuela, and China have, to varying
degrees, a limited ability to process financial transactions with the outside
world through the usual SWIFT/correspondent banking networks. Bitcoin solves
this problem. The relatively high transaction costs are not too much of a
barrier for these types of transactions, since they tend to be larger.

3\. Speculation. Crypto has been shooting through the roof, and people are
piling on the bandwagon.

4\. Tax avoidance. Significant holders of crypto assets may want to diversify
out of crypto, but can't because it will create a paper trail and trigger a
form being sent to the taxman. In some cases, these people may have owed taxes
in prior years which they haven't paid, and they don't know what to do. Some
of them have tried to diversify their holdings by trading into altcoins or
ICOs to put off the day of reckoning. IMO this factor explains a lot of the
explosive demand for ICOs.

5\. "Asset Protection." Crypto provides what many believe to be an off the
books/untraceable store of value. This might appeal to people being sued,
people going through a divorce, or people under criminal investigation.

6\. Possible foreign government interests. Some countries, Russia in
particular, resent the centrality of the U.S. in the world banking system, its
ability to cripple economies by cutting off banking relationships, and the
dollar's role in the world oil trade. These countries might be contributing to
the hype, and perhaps even buying crypto to create legitimacy for alternatives
to the U.S. dollar.

------
alexasmyths
"Also, what justifies Bitcoin's value at ~17k ?"

Nothing - it's a meme, a fad - a rampantly speculative one that involves
money.

So many press articles touting 'BTC breaks $X' price point - it's clickbait -
and also many jornos and bloggers have positions which they are not disclosing
yet, though this is changing.

Because there is no way to value BTC, it's funny game. Someone on Bloomberg
indicated a valuation technique which related BTC to popularity in Google
searches. Which is rather interesting: BTC's value is a function of it's
popularity. Which explains a lot.

ICSs are 'hot' because we've seen how much 'money people have made' in BTC and
so major bets are being placed on ICOs.

They are a magnificently easy way to grab money from people who kind of think
they are 'making an investment' but really their not getting much at all. An
IPO with 0% dilution.

~~~
kenpomeroy
Of course Bitcoin's value is a function of its popularity - it is a network.
Networks become more valuable (and more useful) the more popular they are.

------
quickthrower2
Like other currencies, it is all about confidence. Why do people work so hard
for $USD which has no inherent value? Because it has value due to people's
confidence in it. And the comes from having an entire society and tax system
based on that currency.

Now with Bitcoin the confidence is coming more from speculation as to what it
could be, and that indeed a "greater fool" will buy for a higher price - but
with the finance casino preparing to add this game to their game floor, there
is a good chance you will find such fools.

I saw today a car being advertised for sale 1 BTC. I live in a very non-tech
city so word is spreading. There are limited coins and demand will increase.
Newcomers will not question or care about "oh it used to be $50 for 10000 BTC
why should I pay this much"

------
awareBrah
Amongst some of the people I know, cryptos _currently_ provide much better
investment returns than the stock market. These people have a bunch of extra
money lying around, why settle for 3-10% returns when you hear stories of
crypto graining thousands of percent. To them it’s not about the potential or
the technology, it’s strictly the returns over time.

------
workthrowaway27
I don't know what the reasons for the rise are, but I bet it's largely driven
by Chinese investors/speculators rather than anything happening in the US, but
I think that is reported on less because it is not very visible if you're not
based there.

~~~
tobydownton
Except that all Chinese exchanges / ICOs got banned a couple of months ago.
The US is probably that largest market, it's the home of Coinbase ... I just
don't see what you are basing this assertion on.

~~~
AnimalMuppet
Just guessing here, but... If I were Chinese, and I liked the idea of
cryptocurrency (especially the untraceable part), and the government banned
it, do you think that ban would make me _less_ interested in it? Or _more_?

~~~
jason_slack
Working with Chinese co-workers, I think it would make them less interested.
The penalty for disobeying their government is severe.

------
itamarst
It sounds like you've already answered your question :)

------
dzek
I'm wondering why a lot of cryptos (eth, ltc, many more) use price is going up
since circa 4 days. Like something happend or is going to happen.

~~~
sharemywin
bitcoin futures market is making it more main stream. futures might lead to an
etf which would explode the value.

------
jgamman
people with 10s of Giga $$ hiding in tax havens are moving it to the next
hidey hole. maybe they started it, mined the first few hundred thousand coins
and now they're just dumping $$ into it at regular-ish intervals for long
enough that the rest of us just get used to it. maybe a bit like how the
Brazilians got the Real which is an interesting story in and of itself.

------
c0nducktr
People behave irrationally when there's FOMO.

------
aviv
FOMO

------
down
bitcoin is like a bank account, is mostly a movement against banks and money
printing, I personally, had a few months paychecks as savings in an account,
after a year, I got less money, the commissions were bigger than the interest,
after a few other months when I wanted to close it, I have to pay money out of
pocket, for the commissions, everything that f... the banks, is welcome in my
book, I'm surprised after them crashing the economy in 2008 and getting away
with it, we are still their bitches and we are OK with it, fool me once, fool
me twice.

------
roro5678
I think people are losing trust in govt and banks

~~~
bdcravens
These are reasons for Bitcoin to exist as a currency, but doesn't really
explain its value as a tradable instrument. After all, plenty of people sell
Bitcoin and happily send the money to their bank.

------
arisAlexis
1 store of value 2 new economic shift 3 blockchain revolution

------
rurban
China

------
johansch
Russian/chinese money laundering.

~~~
Top19
Just out of curiosity and because I’ve become so jaded with what constitutes
upvotes on HN, I scrolled to the bottom to see the most downvoted comment.

It seems like yours, which is funny because I completely agree with you.

The front page of the Wall Street Journal today was very clear, 80% of
investors in Bitcoin are from Asia.

------
angel_j
Snowden

