This year, the Bitcoin price has been on a tear. After a mixed 2018, the price of the cryptocurrency ended last year at $3,829. However since then, it’s nearly tripled in value and is currently changing hands at around $11,300.
Following this explosive rally, some analysts are starting to wonder if the Bitcoin price could return to its all-time high of nearly $20,000, printed in December 2017.
While it’s impossible to tell what the future holds for the price of this asset, I think there’s a good chance it could try to beat this level over the next few weeks and months. Today, I’m going to explain why.
Unlike stocks and shares, the value of Bitcoin is not determined by the cash flows a company is able to generate. Instead, the value of the cryptocurrency is determined by supply and demand. If there’s a spike in demand, there’ll be more buyers than sellers in the market, and the price will increase. On the other hand, if there are more sellers than buyers, its price will fall.
Therefore, in theory, as more and more people start to use Bitcoin to transact, its value should steadily increase. And that is precisely what has been happening this year.
Throughout 2018, the number of Bitcoin transactions being carried out declined, but this year, there’s been a substantial uptick in the cryptocurrency’s usage, which seems to be behind the recent price increase.
It’s difficult to tell at this stage if this trend will continue, but it’s clear Bitcoin’s here to stay. The last time its price spiked, many analysts wrote the cryptocurrency off as just a speculative instrument that had no place in the real world. However, two years later, Bitcoin is still here and the number of transactions being carried out with the cryptocurrency is only increasing.
Time to buy?
If the number of Bitcoin buyers continues to surpass the number of sellers, then I can see the price of the cryptocurrency rising back up to its all-time high. Although I don’t think it’s sensible to put a time target on when this might happen.
With that being the case, if you’re comfortable taking on a high level of risk, then it might be worth devoting a small percentage of your portfolio to Bitcoin. The cryptocurrency is a highly volatile asset and is only really suitable for the most risk-tolerant investors.
It’s also highly susceptible to fraud and transaction costs can be high, which suggests this is only really suitable for very experienced cryptocurrency investors.
If you’re like me and prefer to have your money invested in slow and steady blue-chip stocks that produce a regular dividend income, then this isn’t going to be the asset for you.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.