The Bitcoin price had another volatile week that included reaching an all-time high and a withering tweetstorm from famed investor Mark Cuban.
On Tuesday morning (Eastern Time), the price of Bitcoin soared to an all-time high of $2,967.48 on the CoinDesk Bitcoin Index. That eclipsed the previous all-time high of $2,791.69 set on May 25.
At that point, the year-to-date gain in the Bitcoin price was a stunning 206.49%. The Standard & Poor's 500 Index, by comparison, is up 8.68% in 2017.
As often happens with Bitcoin, the price didn't stick around its all-time high for long...
Why the Bitcoin Price Fell After Peaking at $2,967
A couple of hours after Bitcoin hit the all-time high, Cuban let loose this tweet:
I think it's in a bubble. I just don't know when or how much it corrects. When everyone is bragging about how easy they are making $=bubble https://t.co/hTrV5DeWNd
— Mark Cuban (@mcuban) June 6, 2017
The bubble talk sent the price of Bitcoin into a tailspin. The Bitcoin price fell to $2,742.33 before rebounding into Wednesday. But the slide resumed by midday Wednesday, sending the Bitcoin price as low as $2,625.08. It was a loss of 11.54% in little more than a day.
By midday Friday (today), the Bitcoin price had recovered to the $2,860 level - just $100 below the all-time high. For the week, Bitcoin is up 18.26%.
But investors shouldn't let the unusually volatile Bitcoin price action this week distract them from the bigger picture...
Why the Bitcoin Price Has Been Rising So Quickly in 2017
After this week's ups and downs, the price of Bitcoin is still up 195% on the year. And it's up nearly $1,200 - a gain of 69% - in the past four weeks alone.
That's because the Bitcoin price has several powerful catalysts pushing it.
That includes the legalization of Bitcoin in Japan, a policy reversal in Russia from anti-cryptocurrency to pro-cryptocurrency, the trend of initial coin offerings (which must be purchased with Bitcoin or Ethereum), and more money coming into Bitcoin from institutional investors.
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These factors were at play as the price of Bitcoin soared earlier in the week.
Pullbacks have occurred on negative news or profit-taking, but each time the price of Bitcoin has bounced back to reach new highs. This week's run to a new all-time high was preceded by a 31% drop.
This is why long-term Bitcoin investors haven't panicked (or gotten overly excited) in the past few months as the price of Bitcoin has rocketed and sunk. Over the long term, the Bitcoin value is bound to increase as demand keeps rising and the supply of newly mined coins shrinks.
Now here's what investors can expect from Bitcoin next...
Where the Price of Bitcoin Is Headed Now
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If there's one thing I can say with absolute certainty, it's that Bitcoin's volatility will be with us for a long time. Sure, we'll have some periods where prices trade in a relatively tight range, but rapid price changes will continue to happen periodically.
With the steep price rise this year, some investors may worry that a Bitcoin crash is coming.
Another pullback is always possible, particularly when the price is near the all-time high, but recent pullbacks have had "V"-shaped recoveries. Basically, every pullback has been a buying opportunity ahead of the next run to new highs.
The one event on the horizon that will have the biggest impact on the price of Bitcoin has to do with the long-running dispute over how to increase the transaction capacity of the network.
One possible interim solution (known as Bitcoin Improvement Proposal 148, or BIP 148) is set to activate Aug. 1. If enough Bitcoin network participants adopt it, BIP 148 will buy some time for the community to develop and agree upon a long-term solution. The proposal already has the support of 33 Bitcoin companies.
If implemented, even such a short-term solution would be great news for the price of Bitcoin, likely driving it hundreds of dollars higher within hours.
But if BIP 148 isn't adopted - or worse, it causes a split in the community that results in two competing versions of Bitcoin - the price of Bitcoin would plunge.
Even if that "fork" in the blockchain happens, the Bitcoin price would recover (although it might take several months), just as the price of Ethereum did after its fork last year.
Whatever happens with BIP 148, the Bitcoin price will almost certainly end the year higher than it is now. At worst, Bitcoin will be hovering around $3,000 by the end of 2017.
But progress toward a solution in the scaling debate could help drive the Bitcoin price much higher by the end of 2017. And despite the big gains so far, Bitcoin could double or triple from the current price.
Last month, as Bitcoin was hitting its previous all-time high, Aurelien Menant, CEO of Gatecoin, told CNBC he had revised his end-of-year forecast up to $6,000.
And last December venture capitalist Tim Draper, founding partner of Draper Fisher Jurvetson, predicted Bitcoin would reach $10,000 by the end of this year.
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About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.