
Ask HN: Why are Bitcoin and Ethereum suddenly so expensive? - derwiki
In January Ethereum was about $7 USD and now it&#x27;s $200. What happened?
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davidgerard
Bitcoin has a bubble, and all cryptos get dragged along with it.

The present bubble started in early April, when it became impossible to get
USD out of Bitfinex. Being unable to get money for bitcoins on Bitfinex then
caused the bitcoin price to go _up_ – from $900 at the start of April to $1900
in mid-May to $2800 on 26 May, by which the bubble was bubbling on its own.
The mechanism is:

1\. Users have a USD account and a BTC account. They can’t sell their bitcoins
and withdraw their cash, but they can buy more bitcoins using their USD
account – which contains trapped “dollars” which can’t be used for anything
else. Think of it as a Bitfinex “USD” token, not as actual US dollars –
Disneyland fun-money which can only be spent inside the theme park. The price
goes up.

2\. With the higher price on Bitfinex, traders arbitrage by buying coins on an
exchange with a lower price and selling them on Bitfinex. (Note that the USD
from the sale is stuck on Bitfinex.) This raises the price on the other
exchanges.

3\. Expectations raise, the price gets mainstream press and more people get
into Bitcoin. The bubble inflates.

This works precisely _because_ you can’t get your money out (and other
exchanges were also having problems with US dollar withdrawals). Users were
reluctant to remove their BTC from Bitfinex because the “price” was highest
there (even if unrealisable) and because they loved it as a trading platform.

The trapped “USD” also gets used to buy other cryptocurrencies – the price of
altcoins tends to rise and fall with the price of bitcoins – and this has
fueled new Initial Crowdfunding Offerings, as people desperately look for
somewhere to put their unspendable “dollars.”

Even better: on Bitfinex, you can use BTC as collateral to margin-trade on
USD, which you can then use to buy more BTC. Which also drives the price up.
And, of course, you can’t get the USD out, so you might as well buy more
cryptos with them.

~~~
whatisani
So, basically, users believe in the platform Bitfinex (which I haven't heard
of), because they want to believe because the price is high and they could
take their BTC to a different platform and trade for USD?

Then why is it a bubble, ie. how would it burst? Are you alleging Bitfinex was
a Ponzi-Scheme?

Why is the price higher, which incentives does the platform have to simulate a
higher price that it can't back?

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andirk
1) I've heard rumors that "the banks" are behind ETH, so that can be a huge
artificial push to get it popular and mainstream, which in turn can make it
more valuable.

2) JavaScript creator Brendan Eich-backed Basic Attention Token
[https://basicattentiontoken.org/](https://basicattentiontoken.org/) will
launch on May 31 with ETH being the purchasing currency. Its goal is to make
online advertising less super completely shitty like it is now.

3) Although not directly related to ETH, follow news about Lightning Network
[https://lightning.network/](https://lightning.network/) , Segregated Witness
[https://bitcoincore.org/en/segwit_adoption/](https://bitcoincore.org/en/segwit_adoption/)
, and the vast world of alt coins
[https://coinmarketcap.com/](https://coinmarketcap.com/) which can all affect
each other when people like or don't like something (for example, if ETH
starts using Segwit, maybe people will flock to it or away from it).

4) ¯\\_(ツ)_/¯

5) BTC, ETH, LiteCoin and alt coins in general are all way way up, so it's not
just an ETH thing.

------
whatisani
Related: A huge spike in activity in japan
[https://news.ycombinator.com/item?id=14407589](https://news.ycombinator.com/item?id=14407589)

------
elmerfud
Speculation

