Personally,
Bitcoin started as proof of concept and mostly geeks are into it.
Then it grew big and financial people got into the bandwagon.
As with all financial instruments, speculation and hedging got into the game too.
Hence, price will move up and down.
The big boys will try to push up the price, and the rest of the boys will be chasing it. Then they will sell out (cash out), then there will be panic selling. This is VERY COMMON in stock market .
There are two players in Bitcoin Price :
1. The Miners
2. The Traders.
Price will eventually stablised when it makes more sense to Trade rather than to mine. Anything BELOW that, is a BUY for Bitcoin, anything ABOVE that is speculative price.
This is the basic of ECONOMICS, DEMAND and SUPPLY curve.
I think this is a very interesting observation. Not convinced yet that it applies to bitcoin though. With gold or any other commodity one can see that eventually price will hover around production cost because indeed production stops when price is below production cost and thus supply shrinks dramatically catching up with demand eventually. With bitcoin however the supply does not change! It's always constant, even when the price is below the production cost and many miners go bust, the amount of bitcoins mined does not go down but remains the same! And vice versa, when price is above production costs, many miners make profits but the amount of bitcoins mined does not go up!
This might explain why prices go higher percentage wise on bubbles, and lower percentage wise on busts, because there is no balancing of supply from production.
