1 00:00:00,000 --> 00:00:05,360 A while ago, we did a video covering the major Bitcoin decline that happened in late 2018, 2 00:00:05,360 --> 00:00:10,400 and what led up to it. But while many pointed to the Bitcoin crash as proof that crypto was just 3 00:00:10,400 --> 00:00:17,520 a fad or a giant bubble, it's come back in a big way, with Bitcoin recently topping 50,000 US dollars. 4 00:00:17,520 --> 00:00:23,600 It's gone up in value 15-fold since the crash. But why has Bitcoin swung back the other way so 5 00:00:23,600 --> 00:00:29,040 sharply? Part of the answer has to do less with the technology and more with a classic problem 6 00:00:29,120 --> 00:00:34,720 in economics, inflation. You see, as more and more money is added to circulation, 7 00:00:34,720 --> 00:00:40,320 the relative value of a dollar goes down over time. And while most economists agree that a low 8 00:00:40,320 --> 00:00:45,280 but non-zero rate of inflation is a good thing for reasons that are outside the scope of this video, 9 00:00:45,280 --> 00:00:51,440 the rate of inflation of the US dollar has been higher since around 2010, and hit a large spike 10 00:00:51,440 --> 00:00:56,480 recently with the government-issued stimulus checks, which pumped tons more money into the 11 00:00:56,480 --> 00:01:02,160 US economy. All this inflation devalues the dollar, making Bitcoin attractive as an investment 12 00:01:02,160 --> 00:01:06,960 because it's resistant to inflation, leading some folks to believe it'll end up holding its value 13 00:01:06,960 --> 00:01:12,720 better. But why is that? Well, it turns out it's actually written into Bitcoin's code that only 14 00:01:12,720 --> 00:01:18,480 so much of it will ever exist. Unlike a country's central bank, which can just keep printed money 15 00:01:18,480 --> 00:01:24,160 whenever its government wants, Bitcoin has a hard circulation limit of 21 million Bitcoins, 16 00:01:24,160 --> 00:01:29,280 and over 18 million of those have already been mined. Because the difficulty of mining increases 17 00:01:29,280 --> 00:01:35,440 over time, it'll actually take until the year 2140 to mine the remaining 2 million plus Bitcoins. 18 00:01:35,440 --> 00:01:40,080 And although this has been true of Bitcoin since the beginning, these stimulus programs developed 19 00:01:40,080 --> 00:01:44,960 in response to the pandemic have caught the attention of people other than individual investors 20 00:01:44,960 --> 00:01:49,920 or folks mining Bitcoin on their home gaming rigs. Large institutions like banks and well-known 21 00:01:49,920 --> 00:01:54,400 corporations started recognizing Bitcoin's potential as a real store of value this year. 22 00:01:54,400 --> 00:01:59,760 BNY Mellon, one of America's largest banks, announced it would start holding Bitcoin for 23 00:01:59,760 --> 00:02:04,400 customers, and Apple Pay and Mastercard have started supporting Bitcoin payments as well. 24 00:02:04,400 --> 00:02:09,360 But one big criticism of Bitcoin has been the fact that folks who dabble in it aren't really doing 25 00:02:09,360 --> 00:02:14,800 more than mining it and trading it for actual currency. They're not using it to buy TVs or 26 00:02:14,800 --> 00:02:19,840 burritos or whatever. But the idea that Bitcoin could become a more mainstream way of paying for 27 00:02:19,920 --> 00:02:26,160 actual stuff is gaining more traction. As Elon Musk's Tesla, notably, bought a billion and a 28 00:02:26,160 --> 00:02:31,120 half dollars worth of Bitcoin and announced customers, could use theirs to pay for their cars. 29 00:02:31,120 --> 00:02:35,440 And it helps to remember that Bitcoin is still a relatively new player on the financial scene. 30 00:02:35,440 --> 00:02:41,040 I mean, it was only invented in 2008, and it was only 11 years ago that a programmer spent 31 00:02:41,040 --> 00:02:46,960 10,000 Bitcoins on a couple of pizzas. This means that the infrastructure that underpins 32 00:02:47,040 --> 00:02:52,400 Bitcoin has needed time to mature, and it has to a large extent, with respected exchanges 33 00:02:52,400 --> 00:02:57,280 making it easier than ever to buy and sell crypto. Of course, that doesn't mean that these exchanges 34 00:02:57,280 --> 00:03:01,520 aren't still vulnerable to manipulation by folks carrying out pump-and-dump schemes, 35 00:03:01,520 --> 00:03:06,080 which we explained in our previous video on the 2018 Bitcoin crash. However, as Bitcoin 36 00:03:06,080 --> 00:03:10,400 rises in popularity and value, government regulators are taking a much harder look at 37 00:03:10,400 --> 00:03:15,760 cracking down on market manipulation, which may help prevent drastic drops in value in the future. 38 00:03:15,760 --> 00:03:21,280 Don't get us wrong, though. Bitcoin isn't well-regulated yet, and it still is very much a 39 00:03:21,280 --> 00:03:25,280 speculative investment, so we're not telling you to dump your life savings into it. But it seems 40 00:03:25,280 --> 00:03:29,360 that more and more people have been willing to take a chance on it, as interest rates are currently 41 00:03:29,360 --> 00:03:33,280 being kev low to encourage borrowing and spending during the recession caused by the pandemic. 42 00:03:33,280 --> 00:03:37,440 These low rates also mean that many people aren't getting as high of a return on their 43 00:03:37,440 --> 00:03:42,000 investments as they're used to, further fueling interest in Bitcoin. If you choose to buy some, 44 00:03:42,000 --> 00:03:46,800 keep your fingers crossed that Bitcoin will last longer than the beanie baby bubble.