An investment of $1,000 in bitcoin in 2010 would be worth more than $38 million today, not $38 billion, as an earlier version of this column mistakenly stated.$1,000 $2,000 or $3,000.Heck, it could be up to $10,000 by the end of the month, and carry on climbing from there.While most markets around the world are mildly positive for this year, the cryptocurrency bitcoin has gone through the roof.At $2,400 it has more than doubled in value this year alone, and it is hitting fresh highs almost every day.Bitcoins themselves may be very new, yet that kind of price action is very old.In truth, it is starting to look like a bubble, and that should be making investors everywhere feel nervous.Because it tells us that financial crazes are back.Because it will lead to overinvestment and wild speculation.And because bubbles inevitably crash — and once that happens, the losses can ripple out in unexpected ways.Also read: 4 reasons bitcoin still isn’t mainstream If you were lucky enough, or smart enough, to load up on some bitcoins early, you will be feeling a lot wealthier heading into the summer.

On Monday, the value of bitcoin BTCUSD, +0.33% raced up close to $2,200, an all-time high.By Wednesday it was soaring over $2,400.If you had put $1,000 in the electronic currency in 2010, it would be worth an extraordinary $38 million (up from $35 million on Monday and compared to $2,500 if you had put it into the S&P 500 SPX, +0.16% ).Not many people were ever going to be that quick off the mark, but if you had loaded up on a few when the price last crashed in 2014 you would have almost quadrupled your money.In the last month alone, the price has risen by 87%, and there is little sign of it stopping there.There are plenty of solid reasons why bitcoins are going up in price.It is growing in importance, along with other cryptocurrencies, as more and more companies accept it as a means of payment, and as regulators start to accept it as a legitimate investment.It may well start to break out of a small techno world, and become a mainstream asset, like the dollar, or equities, gold or bonds.

Even so, 87% in a month is not a normal price movement.In reality, no one really needs to spend time debating whether it’s a bubble or not.It is just obvious.bitcoin 100 dollars 2010The interesting question is what will be the consequences of that, and how much damage it might do when it bursts.bitcoin lagosOn one level, the answer might be — not much.3 mh/s bitcoinFor all the hype and hoopla around electronic currencies, they are not yet a huge financial deal.bitcoin crashing todayThere are 16 million bitcoins out there, and they currently have a combined value of $35 billion.bitcoin kaufen testOkay, so that might be $40 billion or even $50 billion by the time you get around to reading this far, but in the context of the global capital markets that is not a huge sum.bitcoin first transaction pizza

Apple AAPL, +0.45% has a market value of $805 billion.All the gold in the world has an estimated combined price of $8.2 trillion.The United States bond market is worth an estimated $31 trillion.Bitcoin is hardly that important.Associated British Foods ABF, -0.78% , a relatively dull company you have probably never heard of, is worth about the same as all the bitcoins put together — and the markets would not crash if it went pop.On another level, however, the bubble could matter a lot.Here are three reasons why it should be making investors, whether they have any cryptocurrencies in their portfolio or not, feel anxious.First, like any mania, it will lead to overinvestment, and that will lead to a misallocation of capital.Only this month, a company called RSK Labs raised $3.5 million for a bitcoin “smart contract.” Coinbase, a digital wallet startup, raised $75 million in funding.Anyone who has time on their hands this week might want to try rolling up to a venture capital fund with a whizzy idea for a bitcoin something-or-other.

They will probably walk out with $10 million, and a promise of more funding when that is used up.Sure, some of those will be great ideas, and go on to make everyone a lot of money.But a lot of them will flimsy and unpractical — and will burn though a lot of cash that could have been more usefully deployed elsewhere.Next, it tells us that manias are back.In any long bull market, there are always one or two assets where the price goes completely crazy.It might be dot-com stocks, or space exploration companies, or apartments in central London, or hedge-fund managers, or if you go back far enough, radio shares, or South American railway companies.But it is always something.If there is an asset bubble underway, it surely tells us that we are close to the peak of a bull market — and sooner or later, that will turn down.Finally, if bitcoin crashes, it might not do that much damage.$30 billion can disappear without leaving much of a trace in the capital markets.The worrying point is this.Bitcoin is not just any old asset.

It is also money, if not of the conventional sort.As we learned in 2008 and 2009 when a part of the financial system starts to crumble, suddenly the whole edifice starts to look pretty shaky.We don’t really know what contracts have been linked to cryptocurrencies, what derivatives have been hitched to them, or how deeply they have been embedded into the financial system.One thing is for sure, though.In a crash, we would find out very quickly – and the losses might ripple out in all unexpected ways.Right now, bitcoin is on a roll.We have no way of knowing what its real value might be.The peak of a run might well be some way off.But when a crash comes, it won’t just be its holders who feel the pain.SummaryBitcoin has fallen from all-time highs near $2700 to $1900.Despite this, the digital currency is still up multiples this year.We think this dip is a good spot for first time buyers to get their feet wet, if they haven't yet.We reiterate risks involved with investing in Bitcoin.By Parke Shall Bitcoin has seen its first boom and its first bust already.

The digital currency rose to over $2600 last week before crashing down to about $1900, where it sits today.Here's what the last week looked like, Coverage continues to be binary.As the price appreciated, people took to the press and hyped up the price action.As the price declines, people on social media and in the financial media make it seem as though all is lost and the price will eventually go to $0.Putting the hysteria aside, all we are seeing are the mechanics of volatile supply and demand driving the price of an asset.If bitcoin had been around for 30 years and we were seeing price swings like the ones we are seeing now, we would really be concerned.However, the fact that new individual buyers and sellers are being introduced to the digital currency everyday in significant numbers leads us to believe that these giant price swings are nothing more than growing pains for the digital currency that are compounded and catalyzed by the media.We have been getting a lot of grief as an article we wrote last week talked about moving beyond the $2700 mark for bitcoin.

It was that very same day that the price topped out and began to fall.Had we been advocating for a short-term trade, we would be dead wrong.But the fact is that we've always had a multiple year outlook on bitcoin and we have even advocated for simply buying one and forgetting about it.Before everybody gets on our back about writing a bullish article last week while the price was at $2700, we think readers and potential investors should remember that we were one of the few that advocated for buying bitcoin on the dips after the BITFINEX exchange was hacked some months back.Even at the $1900 level we are at today, the price has still more than doubled since then.In addition, we wrote our "Buy One Bitcoin" article while the price of the digital currency was at $1400.Those who purchased at that level have still recognized gains of about 40%.Why are we an advocate for possibly buying the dip here?A couple of reasons.First, we already stated that we thought this price action was simply a product of bitcoin being a new asset trying to find its footing.

Second, we anticipate the success of bitcoin to become "official" in other countries aside from Japan.We wrote last week that a very large contributor to the price appreciation thus far over the last couple of weeks has been the acceptance of bitcoin as an official currency in Japan.We expect that other countries will follow suit and that the credibility from these moves will not only drive the price higher, but will prompt new participants to buy in the open market.Third, the public is only still figuring out now how to buy bitcoin.The reason that the GBTC bitcoin trust is trading at a 100% premium a lot of the time is because average investors don't really understand the means with which to acquire bitcoin.GBTC data by YCharts We think that only a small portion of the population has had access to the digital currency and that once real demand comes in, coupled with bitcoin's finite amount of supply, that the natural trend will be for continued price appreciation over many years.The point is that every time bitcoin has "crashed" over the last couple of years it has been a dip buying opportunity.

Every time there has been some volatility in the price, the narrative turns to whether or not there will be a loss of confidence in the asset that will eventually lead it to go to zero.Some of these arguments are correct in that confidence does play a large role in the pricing of bitcoin.However, we don't see this confidence fading anytime soon, especially given the recent adaptation of the currency in major countries like Japan.Of course, any Bitcoin investor must be wary of three caveats we pointed out during our last article: The first caveat investors need to be aware of is the fact that bitcoin is reliant upon digital infrastructure in order to be transacted.In other words, you need to have some type of device with an Internet connection and a bitcoin wallet to be able to transact the currency, and in the case of a sizable disaster or catastrophe, investors may not have access to their holdings and may not be able to transact their holdings.This is why we also recommend gold as a hedge against "the system" and actually against bitcoin as well.

The second caveat investors need to be aware of is the fact that bitcoin is still relatively illiquid and this causes sharp price movements for the digital currency, which often is volatile to the tune of far more than 20% over the course of a 24-hour period.Investors need to understand that all capital invested in bitcoin is at risk of being lost and that bitcoin still remains a very speculative investment vehicle.This ties into our third caveat, which is that no doubt hackers are working overtime to try and figure out a way to disrupt the bitcoin landscape.It has happened so far several times over the last couple of years and will likely happen again.We have commented in the past that we didn't think the effects of these hacks would be profound and we can be fairly confident in saying the same for the future.However, one can never be certain.While we may not go out and add aggressively to our holdings here, we do believe that if you are looking for a spot to enter into the bitcoin market for the first time that this pullback may represent an opportunity for those with a multiple year longer-term focus.