I used to be a bitcoin bull. As bitcoin's price soared from $13 to more than $1,000 in 2013, lots of people argued it was an unsustainable bubble. I argued the opposite: that bitcoin's price still had a lot of room to rise. And obviously, I turned out to be right, as bitcoin is now worth $17,000—17 times the cryptocurrency's previous peak in late 2013.

Now we're in the midst of another big bitcoin bull market, and I'm much more worried that the market is getting into unsustainable territory. At the beginning of the year, bitcoins were worth $1,000 apiece, and all bitcoins in circulation were worth around $15 billion—still quite small as global financial assets go. Today, each bitcoin is worth $17,000, and all bitcoins in circulation are worth a much more substantial $280 billion. That seems like a lot for a payment network that only processes about four transactions per second.

Meanwhile, there are growing signs that ordinary, unsophisticated investors may be getting in over their heads. Anecdotal reports suggest that people with no real technical or financial expertise are getting interested in cryptocurrency, and some people are even borrowing money to invest in bitcoin. The market is starting to feel like the final month of the dotcom boom, when people started getting tech stock tips from their taxi drivers.

I don't necessarily think the market is over-valued, and it might still go up further. But I'm pretty sure investors won't enjoy the kind of outsized gains that earlier investors have enjoyed. And I wouldn't be surprised to see the market crash in the coming months.

Why I used to be a bitcoin bull

In December 2011, I became convinced that bitcoin was going to be a big deal. Earlier that year, I had seen the first great bitcoin bubble pop, falling from $30 to $2 in a matter of months. I assumed that decline would continue indefinitely.

Instead, bitcoin's price turned around, and I reconsidered my bitcoin skepticism. If bitcoin-the-currency could have enduring value, I reasoned, then bitcoin-the-payment network could become a disruptive threat to conventional payment networks. And it was obvious that if bitcoin was going to become a widely used technology, the price would have to be a lot higher than $2 or even $30.

The bitcoin network is programmed to never produce more than 21 million bitcoins. If bitcoins are worth $100—as they were in mid-2013—the total value of all bitcoins in circulation would never be more than $2.1 billion, or about 30 cents per person on the planet. I didn't think that was nearly enough to support any kind of real-world applications. I expected the price to go higher.

So when the second bitcoin "bubble" briefly pushed bitcoin's price above $200 in April 2013, I wasn't surprised. Even after the third "bubble" pushed the price above $1,000 in late 2013, I thought the price would probably go higher. $1,000 per bitcoin meant that all bitcoins in circulation would never be worth more than $21 billion—or about $3 per person on the planet. As far as global financial assets go, that's puny.

But with bitcoins soaring above $17,000, the value of all bitcoins in circulation is now more than $280 billion, which works out to around $40 per person on the planet. That seems like a more plausible value for a minor but still significant global financial network.

It also means the value of all bitcoins is about one-fifth the value of all gold held for private investment, which is around $1.5 trillion. That, too, seems about right. Bitcoins seem to be evolving into a kind of digital gold, but it doesn't seem likely that people around the world will want to hold more of their wealth in bitcoins than gold any time soon.

Obviously, this is far from an exact science. Bitcoin's price could easily double in the coming months. Or the price could plunge by 80 percent, as it did after the last two big bitcoin booms in 2013.

But I think it's very unlikely that bitcoin holders will ever again see the kind of outsized gains enjoyed by people who bought bitcoins prior to 2017. Bitcoin is now a good-sized financial asset. There isn't much room for it to get dramatically bigger.

A lot of normal people are getting into bitcoin

The thing that worries me the most about bitcoin's current boom is the democratization of bitcoin investing. In 2013, 2015, and even 2016, bitcoin was still a pretty obscure topic. It was widely discussed in the technology and financial press, but most normal people weren't paying attention. In 2017, things are different.

The currency has been heavily covered in the mainstream media. A number of people have told me they've had non-technical friends and relatives ask them about investing in bitcoins.

"We've seen mortgages being taken out to buy bitcoin," said Joseph Borg, president of the North American Securities Administrators Association, in a Monday interview. Searches for the phrase "buy bitcoin with credit card" are skyrocketing on Google.

This suggests that the current bubble is different from earlier "bubbles" in 2011 and 2013. The average sophistication of investors is lower. Many of those "buy bitcoin with credit card" investors will be easily spooked if the price starts to decline.

This also means that there's limited room left for speculation-driven gains. The cycle that has driven bitcoin price gains so far—a rising price driving media attention, which drives further price gains—only works if there's a large pool of people out there who haven't heard about bitcoin yet. And that pool is dwindling fast.

Bitcoin faces some big challenges

In the long run, of course, these speculative forces won't matter. The big question is what will people use bitcoin for, and how big will the resulting markets be?

A big challenge, however, is that the network is becoming increasingly congested. Right now, the network is struggling to process more than about four transactions per second, and intense demand for network capacity has pushed the average transaction fee above $20. There are various proposals to relieve this congestion, from increasing the size of Bitcoin blocks to developing new technologies to allow many transactions to occur outside of Bitcoin's blockchain.

Nevertheless, capacity limits are likely to limit the Bitcoin network's growth for years to come.

Bitcoin is also hampered by the extreme volatility of the bitcoin currency. Early bitcoin proponents envisioned the network as an alternative to conventional financial networks—for example, allowing people to buy a coffee with their smartphone. But no ordinary consumer is going to want to make day-to-day purchases with a currency whose value can fluctuate 10 percent from day to day.

This isn't to say bitcoin will be useless. Bitcoin has long been the currency of choice for "dark Web" applications that allow people to buy and sell illicit goods. It's also heavily used for buying other cryptocurrencies. I think it has a lot of potential to eventually disrupt the market for international money transfers, and I expect people will develop other applications in the future.

But the really bullish case for bitcoin is based on the premise that bitcoin will become a new foundation for the global financial system the way that the Internet became the foundation of global communications. That looks less likely today than it did in 2013.