A while ago, we did a video covering the major Bitcoin decline that happened in late 2018,
and what led up to it. But while many pointed to the Bitcoin crash as proof that crypto was just
a fad or a giant bubble, it's come back in a big way, with Bitcoin recently topping 50,000 US dollars.
It's gone up in value 15-fold since the crash. But why has Bitcoin swung back the other way so
sharply? Part of the answer has to do less with the technology and more with a classic problem
in economics, inflation. You see, as more and more money is added to circulation,
the relative value of a dollar goes down over time. And while most economists agree that a low
but non-zero rate of inflation is a good thing for reasons that are outside the scope of this video,
the rate of inflation of the US dollar has been higher since around 2010, and hit a large spike
recently with the government-issued stimulus checks, which pumped tons more money into the
US economy. All this inflation devalues the dollar, making Bitcoin attractive as an investment
because it's resistant to inflation, leading some folks to believe it'll end up holding its value
better. But why is that? Well, it turns out it's actually written into Bitcoin's code that only
so much of it will ever exist. Unlike a country's central bank, which can just keep printed money
whenever its government wants, Bitcoin has a hard circulation limit of 21 million Bitcoins,
and over 18 million of those have already been mined. Because the difficulty of mining increases
over time, it'll actually take until the year 2140 to mine the remaining 2 million plus Bitcoins.
And although this has been true of Bitcoin since the beginning, these stimulus programs developed
in response to the pandemic have caught the attention of people other than individual investors
or folks mining Bitcoin on their home gaming rigs. Large institutions like banks and well-known
corporations started recognizing Bitcoin's potential as a real store of value this year.
BNY Mellon, one of America's largest banks, announced it would start holding Bitcoin for
customers, and Apple Pay and Mastercard have started supporting Bitcoin payments as well.
But one big criticism of Bitcoin has been the fact that folks who dabble in it aren't really doing
more than mining it and trading it for actual currency. They're not using it to buy TVs or
burritos or whatever. But the idea that Bitcoin could become a more mainstream way of paying for
actual stuff is gaining more traction. As Elon Musk's Tesla, notably, bought a billion and a
half dollars worth of Bitcoin and announced customers, could use theirs to pay for their cars.
And it helps to remember that Bitcoin is still a relatively new player on the financial scene.
I mean, it was only invented in 2008, and it was only 11 years ago that a programmer spent
10,000 Bitcoins on a couple of pizzas. This means that the infrastructure that underpins
Bitcoin has needed time to mature, and it has to a large extent, with respected exchanges
making it easier than ever to buy and sell crypto. Of course, that doesn't mean that these exchanges
aren't still vulnerable to manipulation by folks carrying out pump-and-dump schemes,
which we explained in our previous video on the 2018 Bitcoin crash. However, as Bitcoin
rises in popularity and value, government regulators are taking a much harder look at
cracking down on market manipulation, which may help prevent drastic drops in value in the future.
Don't get us wrong, though. Bitcoin isn't well-regulated yet, and it still is very much a
speculative investment, so we're not telling you to dump your life savings into it. But it seems
that more and more people have been willing to take a chance on it, as interest rates are currently
being kev low to encourage borrowing and spending during the recession caused by the pandemic.
These low rates also mean that many people aren't getting as high of a return on their
investments as they're used to, further fueling interest in Bitcoin. If you choose to buy some,
keep your fingers crossed that Bitcoin will last longer than the beanie baby bubble.