What's driving the bitcoin's recent price rally?

Bitcoin topped to a lifetime high well above $16,000 on Thursday after climbing some 67 percent over one week.

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A Bitcoin (virtual currency) coin is seen in an illustration picture taken at La Maison du Bitcoin in Paris, France, June 23, 2017 (Benoit Tessier/Illustration/Reuters)

Bitcoin topped to a lifetime high well above $16,000 on Thursday after climbing some 67 percent over one week.

The largest cryptocurrency by market value has soared from less than $1,000 at the start of the year as optimism climbs for the distributed ledger technology known as blockchain that is at the heart of bitcoin.

Here are some of the reasons behind the sudden surge in cryptocurrency:

  • The gains have been driven by several factors — perhaps the most important being the irrational mentality that can take over in speculative bubbles. But most people buying Bitcoin are doing so in the belief that others will want it even more in the future. The gains, though, have many people, even Bitcoin believers, anticipating a big crash.
  • The entry of hedge funds and other institutional investors have further fuelled the bitcoin rally. To make matters worse (or better) Chicago Mercantile Exchange and Chicago Board Options Exchange have been racing to roll out Bitcoin futures contracts. Most banks are already signed up with these exchanges and consequently can immediately begin trading the contracts.
  • Not just large investors, but individual investors have also been increasingly active in bitcoins trade. Nowhere has the phenomenon of ordinary people buying virtual currencies been more visible than in South Korea, where several exchanges have storefronts to help new customers.

(With inputs from agencies)

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