Bitcoin market cap now +$200M as prices keep rising

Why would one expect that? The demand is increasing, and given the fact that the supply is increasing at a much slower rate, then it's quite normal for the value to increase.

That being said, I don't know what caused the "sudden" (few weeks) increase from $14 to $18, as I don't read about Bitcoin that often. But I do expect the value to keep rising as more companies start adopting Bitcoin payments and more people then get interested in it. And I also expect Bitcoin to remain relatively volatile at least until its market value is counted in billions or tens of billions of dollars, when each individual transaction will have a much smaller impact on its value, in either direction.

Anything that makes bitcoins more desirable will increase their value. This trivially includes anything that makes BTC more useful, like being accepted at more stores. Also services that make it easier to buy and sell BTC increase liquidity, so more people are interested in having them. But also, anything that increases the value bitcoins will have in the future (as trends in acceptability and ease of use increase) attract speculators. They basically gamble that the value of bitcoins in the future will be higher than their price right now. This drives up the price of BTC near the speculated future value.

There are other things that could increase their value, like if people start to trust their security more than other forms of transactions. Or if someone finally gets around to writing a cool application that uses more features of the protocol.

Instead, think of Bitcoin as a giant consensus accounting ledger. Everyone can see which crypto-signing-keys have the right to spend which balances. (The balances happen to be measured in an integral unit called a 'satoshi', and 100,000,000 of these satoshis equal "1 BTC"... but these are tallies in a ledger mapping key-identities to available-spending-balances, not rare collectables.)

Given that, a person's Bitcoin holdings are simply numerical totals which, at the direction of their signing keys, can be handed in full or part to other signing keys. But it works like having a bank balance at a shared "bank in the cloud", massively replicated, with no single authority or point-of-failure, where everyone can see every transfer. (Balance transfers are public announcements, not the secure sending of a rare secret.)

So bitcoin balances are valued with regard to $USD (or other currencies) like other foreign-currency bank balances - who's willing to buy it, for how much, compared to who's willing to sell, for how much. That is, yes, "supply and demand", but based directly on the willingness of holders/seekers to transact, and only indirectly on the total 'supply' in existence.

That the price has run up indicates that holders of current bitcoin balances want more $USD to give it up, and that seekers are offering more $USD to get it. Every day more people hear about Bitcoin, and slowly and slightly (because it's pretty complicated and different) come to understand it better. Also, using a heuristic common for new technologies, people only believe something new will survive after seeing it survive for a while. [1]

From my perspective, heists and scams are good for Bitcoin, because they're providing a trial-by-fire and accelerated-education in various economic, security, and usability topics for anyone involved (or just watching from the sidelines). Things that took decades or centuries to work out in traditional economic systems will be resolved in months or years, and with countermeasures optimized for today, not the 18th/19th/20th centuries.

[1] See for example Nassim Nicholas Taleb on the 'Lindy Effect': http://www.wired.com/opinion/2012/12/worlds-not-ending-but-t...

EDIT: And within an hour of me posting that, the crash has come.

Why? It happens like that for lots of things. Furthermore, keep in mind that growth in the supply of Bitcoins is somewhat artificially capped.

Is this an aberration or is Bitcoin going to stay at these pricing levels?

Any answer to this question is a guess. You can make plausible guesses either way, but if anyone knew for sure, they'd invest appropriately, keep quiet, and become rich.

Yes, but a lot of economics is psychological. http://www.npr.org/templates/transcript/transcript.php?story...

Summary: A currency works because enough people think it has value. Psychological sleight of hand is how Brazil beat 80% hyperinflation two decades ago.

Just curious, but why is there a widespread belief that security incidents that have nothing to do with the bitcoin protocol will lead to the value to implode? Seriously, maybe I don't understand something here.... does this happen to the dollar when US banks are robbed?

If the supply of currency doesn't grow at exactly the same rate as the economy as a whole, then overall prices in that currency will change. If the supply of currency grows faster than the economy, then the currency will become less valuable in relation to goods and services, and prices will rise. This is known as inflation. On the other hand, if the currency supply grows slower than the economy, then the currency will become more valuable in relation to goods and services, and prices will fall. This is known as deflation.

The upper bound on the supply of BTC is deflationary because it guarantees that the rate of growth in the supply in bitcoins is forever approaching zero. This means that, in the long run, any growth in the bitcoin economy whatsoever will result in deflation.

Whether that's a virtue or not is, at best, debatable. Economists generally agree that deflation is very bad in the modern economy. While they aren't synonymous, the historical record indicates that economic deflation and economic recessions (and depressions) tend to go hand-in-hand, and there's a fairly strong theoretical explanation for why this should be. That's the whole reason why governments try to always maintain a small amount of inflation. Zero (or near-zero) inflation might be the ideal, but policymakers consider deflation to be scary enough that they prefer to err a little bit on the side of inflation as a cushion to guard against deflation.

The bigger thefts come from people trusting untested websites acting as banks & brokers that are not regulated, do not (usually) have a physical presence, and usually do not have the required capital to insure their holdings.