I published this about 7 weeks ago when pricing was around $1,000. With the Mt. Gox implosion, there has been a strong pull back in the market. Eventually, there will be a more defined need/place in the ecosystem for Bitcoin. This recent episode illustrates that there are an array of components, security & circuit breakers necessary for this to be a more widely accepted currency. It is just the beginning of a series of market unjulations as well as catalyst for much needed infrastructure enhancement.
"Anyone watching Bitcoin's meteoric rise in price has to wonder what is going on. Despite all of the trappings of crypto modern technology, everyone has to remember that it behaves according to the laws of all markets (supply and demand).
Supply is capped at 21m coins, and as the global supply gets closer to this, growth in supply slows significantly. So, there is not significant spikes in supply.
Demand on the other hand, has both traditional currency use and an increasing amount of "momentum" speculative buying. Like any market, as people see the price rise, others jump in with the hopes of riches, driving the price higher...rinse and repeat and you hit bubble town. Supply is capped and demand does not.
When does it pop? Who knows but it unwinds exactly the same way it has for 5,000 years. A segment sells hard. It is an illiquid market and buyers start to dry up as the price drops and fear replaces greed. If something fundamental like a global equity crash hits or governments ban it outright, who knows where the bottom goes.
The issue is the very nature of its libertarian beauty. There is no lender of last resort, no market makers and no "too big to fail" government intervention. In 1987 and 2008, without this circuit breaker, we'd be in the Dark Ages again. People getting in today are bullish but nervous given the rise (when has an asset rising 9x in a short period of time not led to significant correction...could go to 100x before it blows or just 10x).
Have you wondered why there are so many positive, get into the pool, "there is Gold in them hills" articles? If I own Bitcoins, getting a ton of others coming in will drive the price through the roof. This is what happened in the 1920's and led to the Blue Sky laws, etc to mollify stock price manipulation.
I think the world government's printing presses have created a widespread interest in currency alternatives. However, Bitcoins have issues with being illiquid, having a nascent market infrastructure, no regulation on behavior (1800's style pump & dump manipulation), no circuit breakers and speculative demand. So, like in 1999, we all knew things would end in tears. It is only after the crash that the true fundamental building began (eg Amazon). So, buckle up. Things are going to get wild in the West..."