Business Insider: Bitcoin Is The Perfect Asset Bubble - Prices Could Go Vastly Higher From Here

If you're like most people, you have probably been hearing a lot about "Bitcoin" recently.

And, if you're like most people, you probably do not know what it is or what the fuss is all about.

Here's a snapshot.

Bitcoin is an electronic currency--a new form of money.

It's also, possibly, the next great asset bubble. (Or investment, depending on how the story ends. Or both, depending on when you get in and get out.)

Bitcoins take the form of strings of numbers that can be electronically owned by and transferred among individuals and organizations. For now, the currency is primarily used for payments by fringe retailers or illegal transactions, but it is being accepted more and more widely. And organizations that exchange Bitcoins for standard currency are now being approved to operate as banks.

The premise and promise of Bitcoin--the part that appeals to folks who don't happen to be gold bugs, conspiracy theorists, or cryptography geeks (obviously they all love it)--is that the current plan is for only a finite number of Bitcoins to be created. This is in direct contrast to standard government-issued currencies, which governments can always print more of. If the supply of Bitcoins remains finite, this should theoretically eliminate inflation, which is one of the biggest drawbacks of paper money.

(Although inflation has remained low in recent years, it ravages the value of paper money over time. A dollar in 1900 is only worth about $0.04 in today's currency.)

So Bitcoin is conceptually very interesting, especially since it is not issued by a government agency. (Here's a great presentation on what Bitcoin is and why some people are so excited about it.)

What has suddenly grabbed the public's attention about Bitcoin, however, is the recent explosion in the value of the currency.

Because the number of Bitcoins is limited, their value increases rapidly when more people want them. And when the value of something increases rapidly, even more people want them. So the initial price increases fuel future price increases which fuel more future price increases...at least for a while.

Of course, this dynamic has fueled the inflation of every asset bubble in history. So it behooves people to analyze the sustainability of such price increases carefully.

When Bitcoin was launched in 2010, the currency initially had very little value. Quickly, however, the price of each "coin" soared above $25, making the initial Bitcoin believers rich. Then prices collapsed, with coins trading down to $5 again. And then Bitcoin prices began a slow and steady rise that has suddenly gone parabolic. - Read more here: http://www.businessinsider.com/bitcoin-is-the-perfect-bubble-2013-4