Perhaps the better question is, "why is fiat getting so cheap?"
With a current market capitalization of 80 billion US dollars, bitcoin is getting attention around the world. Some analysts are calling it a bubble, others think the price of bitcoin could still see a 10x or 100x gain. Who's right?
I think we need to look at fiat currency, the primary competitor to bitcoin in the savings account and foreign exchange reserve currency markets. These are huge markets in terms of total dollar value. The forex market alone constitutes a 5 trillion dollar a day exchange of value. If bitcoin comes to represent a large share of international exchange volume, it will also almost certainly hold a large part of the total value of the exchange markets. What could the dollar price of Bitcoin look like in a world with 1% of global exchange being conducted in bitcoin?
Total global currency market exchange value daily $USD = $5,000,000,000,000
1% of total exchanged value = $50,000,000,000
Therefore, if bitcoin were to become 1% of global currency transactions, it would have a daily volume of 50 billion US Dollars (USD).
As of September 1st, 2017, the highest daily bitcoin volume in USD that we've seen is under 2 billion USD. Bitcoin volume would need to increase by 25x in order to compete for 1% of global currency exchange.
Exchanges of value are also stores of value, and what would the price of a bitcoin be if volume grew by 25x?
Bitcoin' price would likely grow along a similar curve as its volume. A 25x increase in the price of bitcoin in this scenario would mean that one bitcoin would be valued @
$4,900 x 25 = $122,500
$122,500 would be the likely price of a bitcoin if it reached 1% of global exchanged value.
We live in a world where the rate of return off of "secure" fiat currency investments are returning less than 2%, even on long term bonds. Interest rate increases will be impossible with the burgeoning debt crisis around the world. Asset prices have been inflated to the max by cheap credit, and higher returns are unlikely and risky.
So, why is bitcoin so expensive?
Because it's likely to get more expensive in the future.