Bitcoin hits $200

Which is a lot of utility. Consider that in the US we still write physical checks, and paying by credit card costs the vendor a few percent every time.

However that utility is not limited to bitcoin. You can set up a similar algorithm using a slightly difference hash, and voila you have bitcoin2. Some people are worried that bitcoin is deflationary; I'd be more worried about alternatives popping up and inflating the whole supply. Especially since current bitcoin favors those who started mining early (and are now millionaires?) - why adopt a currency that makes other people rich when you can just mine your own new currency?

In the end, it depends what the crowd decides to do with it. The value of fiat money is always subjective (although at least USD is backed by the fact you can use it to pay your taxes.)

I take it the plan for transaction fees is carefully worked out to make it still be attractive to miners and merchants vs charges for visa etc or have I got the wrong end of the stick?

http://en.wikipedia.org/wiki/Deflation

"deflation is a decrease in the general price level of goods and services"

Prices of real goods are rapidly decreasing for Bitcoin, but you are correcting that the exchange rate is ballooning or "inflating" in that sense.

There was an (anonymous) article a while back from someone who ran an [I believe a small] exchange, whereby he could manipulate the buy/sell prices to his advantage (driving up BTC price) - and I can see that happening very easily; I don't know what sort of algorithms Mt Gox (or any exchange) runs for it's immediate buy/sell spot price, but a simple variation of the weighted average over the past hour * 1.05 would easily provide a price that is always rising, unless a user manually gives a lower buy / sell price - and even then that would have to be beat the current price by 5% to make any impact on the spot price. Hell, you could just inflate the prices you show to users by a certain % to create that sort of meteoric rise, even if they do place lower/higher bids - those bids are somewhat based on what the value they see in that moment.

Is this a bubble? We just don't know. Currently there are people who are willing to part quite a lot of money for a scarce virtual currency, so by all accounts if there's a demand - the value will rise, especially if supply is limited (not just now, but there will only ever be a finite amount of BTC).

Even with the hiccups (0.8 vs 0.7 double spending, Mt Gox crashes) - and a price crash in it's history - surely anyone would think twice before putting down $200 per BTC, especially when it was worth only $15 three months ago.

What's convincing these folks to invest, I just don't know. Maybe they see something I don't, but at the moment I just see a very overvalued bubble just waiting to pop. A part of me fears that it's being overrun by folks who don't trust private financial institutions to hide their (illegitimate) wealth, as I don't think the average Cypriot has the wealth, nor there are enough Cypriots (or average / middle/working-class Europeans) altogether to create the demand which would push the price where it is now. Maybe someone can run the numbers; average salary, savings, investments, total # of folks who are tech savy enough to buy BTC, compare that with the uptake in Mt Gox (or other exchanges) signups, volume, traffic etc and put together a more substantial assessment.

BTC is something the world needs badly, and over the next decade I can see it becoming incredibly prominent. But the sort of rise we've seen in the past 3 months should've taken at least 3 years; and even then it's an incredible run for what's nothing more than a digital, limited commodity.