Following Adam Smith's laws of economics, this supply-demand scenario could support price rises in the future as it becomes harder, or at least more competitive, to mine for the same currencies and therefore supply starts to tail off. This could be a good thing for investors wishing to sell and make a profit.
However, the demand for cryptocurrencies is also having a big effect on the supply of energy, with huge demands being placed on countries; national grids - especially in China. There is a cost to the planet in mining cryprocurrencies.
Paul O'Connor, head of Janus Henderson's UK-based multi-asset team explains: "The processes supporting cryptocurrencies are hugely energy consuming, with vast numbers of computers in operation 24 hours a day, running the calculations that generate each unit of the digital currency.
"Analysts at the cryptocurrency website Diginomics estimate the annual energy consumed in mining Bitcoin is similar to what the whole of Denmark uses, or the equivalent to the consumption of more than 3m US households."
With most of this being based on coal-fired electricity generation, Mr O'Connor comments: "Any rise in the Bitcoin price is likely to increase its effect on the environment, since miners can justify spending more on electricity as they receive more revenue for each unit created."
Controlling your money
Controlling one's financial destiny is a big attraction of cryptocurrency, either by creating it yourself or by trading it online, with no banks or stockbrokers taking their share, and no Mifid II telling you what to do with the tokens once you have them.
As Kara Ward, financial services regulatory and legislative attorney at Venable LLP, states: "The rise in cryptocurrency stems from tech-savvy individuals and others who wanted to transmit funds easier, quicker, at lower cost, and do so as anonymously as possible by not using a third party, such as a bank.
Philipp Pieper, chief executive of Swarm Fund, explains: "In the beginning, Bitcoin emerged from the frustration people had with the established banking system in the fallout of the global financial crisis.
"There was an overwhelming view that ordinary people had trusted the experts at mainstream financial institutions with their money, and those financial institutions and experts had taken egregious advantage of that trust."
Clem Chambers, chief executive of stocks and shares information site ADVFN, has highlighted five particular drivers for the growth and popularity of cryptocurrency. It is hard to argue against the attraction of borderless, bank-less, low-regulation currency.
He cites:
- Technology: the blockchain breakthrough is a core new development, which will change the world.
- M2: A global shortage on M2 money supply as expressed by global deflationary pressures. Historically, this has fuelled private token issuance.
- Banking regulation: There has been a crippling of the utility of money by regulation on banking. Know-your-customer, anti-money laundering rules and cash limits on spending on big-ticket items, for example. The lower utility of fiat has lowered real value and tightened supply of means of exchange.
- Uniqueness: The unique utility of cryptocurrency means there is bank-less banking, irreversible transactions, fast transfers and it is borderless.
- Free money: Suddenly, the passive becomes dynamic. Mining coin is profitable and passive.
- Gold-Rush effect: Rising prices make for rising interest, which in turn makes prices rise.
Mr Pieper comments: "Bitcoin took root from the very real belief that individuals, no matter how small, could determine their own destiny in a way that didn't encompass banks, and wasn't subject to the stacked rules of the established system.
