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Have you heard about the next big thing in investing? No, it’s not legal marijuana, albeit pot stocks have been nothing short of unstoppable over the past year. It’s actually digital currency bitcoin, which has risen by nearly 900% over the trailing-two-year period. What once cost a consumer or investor around $255 per bitcoin will now set you back around $2,500.
Why have digital cryptocurrencies like bitcoin been such a hot commodity of late? It appears to be a confluence of catalysts that have accelerated momentum behind bitcoin, Ethereum, and other digital currencies.
Why bitcoin has risen nearly 900% in two years
Bitcoin and other cryptocurrencies are relishing in newfound media coverage. Between the sheer outperformance of these digital currencies compared to the broader stock market, to recent ransomware attacks (e.g., WannaCry) where the perpetrators demand payment in bitcoin in order to “unlock” a computer, bitcoin is in the spotlight. The more media coverage it receives, the more interest there will likely be in this burgeoning payment and investment platform.
Weakness in the world’s most prominent currency, the U.S. dollar, may be helping as well. President Trump has, on numerous occasions, proclaimed the U.S. dollar to be too strong. A weaker dollar can help promote the export of American goods, but U.S. consumers aren’t typically huge fans of seeing their currency weakened. Some investors have used the dollar’s weakness as an opportunity to invest in bitcoin, which is a “finite” resource since the maximum number of bitcoin is limited to 21 million. The fact that the dollar’s monetary base can be expanded infinitely and bitcoin is limited provides the belief to some investors that bitcoin could be a better means to preserve and grow wealth over time.
Bitcoin has also benefited from a growing acceptance of the currency by countries, industries, and businesses. Japan declared the cryptocurrency legal tender earlier this year, while some retailers within the marijuana industry have been using bitcoin as a bridge currency between bank-issued debit and credit cards and marijuana product purchases. Since marijuana is a federally illegal substance, most banks won’t deal with pot-based businesses, so bitcoin services act as an intermediary by allowing consumers to buy bitcoin and pay for their pot products that way. Bitcoin services then transfer that bitcoin back to cash for the marijuana business in return for a nominal service charge.