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Here's why bitcoin boomed in 2016

Last Friday, the price of bitcoin hit $903, its highest level since November 2013 when it reached $979, according to the CoinDeskindex. 

The digital currency plateaued between November 2013 and January 2015, but it's been rising steadily since then.

According to Bitcoin, the cryptocurrency saw an annual gain of 54% in 2016, outperforming all fiat currencies, most of which stumbled this year.

There are several reasons why the digital currency has been performing so well: 

It's seen as a safe asset. Bitcoin surged by 4% overnight after Trump's victory in the US presidential election, while the Dow Jones, Nasdaq, and all major European indices dropped dramatically. Bitcoin is an alternative asset, like precious metals and art, and as such, it doesn't correlate with the stock market, which makes it an attractive diversifier. It is also a decentralized currency and not tied to any single country's policy decisions, which is a great advantage in times of political and economic uncertainty.

A spate of new bitcoin products has reassured investors. A number of players recently entered the market with bitcoin-based offerings geared at mainstream investors — for example, the Winklevoss brothers' bitcoin ETF and investment solutions from blockchain hedge fund Polychain. Such products are helping to reinforce bitcoin's image as a reliable investment. In addition, bitcoin and blockchain platform Lisk announced new transparency measures last Wednesday. 

It's been getting more coverage and exposure. In November, the CEO of Blockchain, a successful London-based bitcoin wallet, said the company was on track to have its busiest month to date; and Circle, a US-based bitcoin money transfer app, made the news due to major changes to its business model. Such media exposure will likely help the still poorly understood asset enter the public consciousness.
Bitcoin's continued growth will depend on the factors that have so far contributed to its success. On one hand, as the cryptocurrency gains more exposure and enters the mainstream, more investors may to flock to the asset. On the other hand, however, much of bitcoin's recent boom has resulted from uncertainty around events such as the US election and Brexit.

As Trump enters office and Brexit negotiations begin, the resulting settling-down might impact bitcoin's momentum. Bitcoin's future success is tied to whether investors will embrace the asset on its own merits, rather than simply in response to geopolitics.

Blockchain technology, which is best known for powering Bitcoin and other cryptocurrencies, is gaining steam among finance firms because of its potential to streamline processes and increase efficiency. The technology could cut costs by up to $20 billion annually by 2022, according to Santander.

That's because blockchain, which operates as a distributed ledger, has the ability to allow multiple parties to transfer and store sensitive information in a space that's secure, permanent, anonymous, and easily accessible. That could simplify paper-heavy, expensive, or logistically complicated financial systems, like remittances and cross-border transfer, shareholder management and ownership exchange, and securities trading, to name a few. And outside of finance, governments and the music industry are investigating the technology's potential to simplify record-keeping.

As a result, venture capital firms and financial institutions alike are pouring investment into finding, developing, and testing blockchain use cases. Over 50 major financial institutions are involved with collaborative blockchain startups, have begun researching the technology in-house, or have helped fund startups with products rooted in blockchain. 

Jaime Toplin, research associate for EMARKETER, Business Insider's premium research service, has compiled a detailed report on blockchain technology that explains how blockchain works, why it has the potential to provide a watershed moment for the financial industry, and the different ways it could be put into practice in the coming years.