Bitcoin is back. Again.
Nearly three years after rising sharply to a high of $ 19,783, the price of a single Bitcoin rose above it for the first time on Monday, according to data and news provider CoinDesk. Cryptocurrency has risen since March after falling below $ 4,000 at the start of the coronavirus pandemic.
Bitcoin’s latest rise differs from the last rise in 2017, which was largely driven by investors in Asia who had just learned about cryptocurrencies. Back then, the digital token was rapidly losing momentum as people questioned what it could do other than allow for easy online speculation and drug and ransom payments.
“It’s a very different set of people who are recently buying Bitcoin,” said Philip Gradwell, chief economist at Chainalysis, which analyzes the movement of cryptocurrencies. “They do it in more stable amounts over long periods of time, and they take it from stock exchanges and keep it as an investment.”
The tension is backed by regulators and ordinary financial companies trying to make cryptocurrencies safer and more accessible. The Office of the Currency Monitor, a U.S. regulator, said this summer that banks would be allowed to hold cryptocurrencies for customers. And PayPal announced last month that it would follow its rival place and allow people to buy and hold Bitcoin and a few other cryptocurrencies.
“Our move came as a result of talks with officials and saw the dramatic shift to digital payments as a result of the pandemic,” said Dan Schulman, CEO of PayPal, in an interview. More than a million people – three to four times what the company expected – joined a waiting list to use cryptocurrencies before the feature was launched, he said.
Bitcoin’s rise is part of a broader spread in cryptocurrencies and stock markets that defy the gloom of a pandemic-induced recession. The Dow, S&P 500 and Nasdaq have reached record highs this month, with Wall Street driven by the presidential election and the news of potential coronavirus vaccines.
Bitcoin is a digital currency with software and rules, released in early 2009 by a shadowy creator with the pseudonym Satoshi Nakamoto. The computer code stated that the total supply of Bitcoin would be limited. Only 21 million tokens will ever be created, distributed in small blocks every day – through a process known as mining – to some of the computers that maintain the currency’s online infrastructure.
Like gold, Bitcoin can be created, moved, and stored outside of any government or financial institution. Bitcoins are found on a financial ledger, known as a blockchain, which is maintained and updated by a voluntary network of people running thousands of computers around the world – a system to ensure that no computer or institution can change the rules or control the network .
The open nature of the system – and the fact that anyone can join it and create a wallet without giving as much as a name or phone number – has made it popular with those who want to bypass the traditional financial system. They have included terrorists, drug traffickers and countries such as North Korea, Venezuela and Iran who want to evade US economic sanctions.
“This technology already plays a role in many of the most significant criminal and national security threats our nation faces,” the Justice Department said in a report last month. The report described how deeply Bitcoin had been woven into the infrastructure of the criminal world.
But the stateless nature of Bitcoin has also won over investors interested in legitimate uses of the technology. Some are motivated by a libertarian distrust of governments. Others who are less ideological have turned to Bitcoin as an alternative to the financial system.
Yet Bitcoin is not supported by anything other than its computer network and the belief in people buying it and giving it value on exchanges. Many of these people are betting that someone else will be willing to pay them more for their Bitcoin in the future.
This has made Bitcoin prices unstable. It fell to its most recent low in March when fears of the pandemic hit global markets. Soon after, however, investors began talking about Bitcoin as a recipient of the global downturn.
In May, Paul Tudor Jones, one of Wall Street’s best-known hedge fund managers, said he had put nearly 2 percent of his portfolio in Bitcoin. He said the ceiling on Bitcoin production made it an attractive alternative to the declining value of traditional currencies, which he thought was inevitable as central banks issued more money to encourage an economic recovery.
“Every day that Bitcoin survives, confidence in it will rise,” Jones told CNBC at the time. He did not respond to a request for comment on this article.
Some public companies also dived into Bitcoin due to concerns about the value of the dollar. In August, MicroStrategy, a software company in Virginia, said it bought $ 250 million in Bitcoin to store some of the cash it had in the corporate coffers.
Michael Saylor, CEO of MicroStrategy, said in an interview that after knowing almost nothing about Bitcoin earlier this year, he had come to believe how the hard-coded limit on the number of tokens would help it keep its value over time. He became so excited that he put $ 175 million of his own money into the currency. MicroStrategy later acquired an additional $ 175 million of Bitcoin.
“For everything someone invested in as a value proposition, it’s starting to look like it’s better to move it into Bitcoin,” Saylor said.
In October, Square said it put $ 50 million of the company’s cash into Bitcoin. In 2018, Square also started offering the digital currency in the Cash App, its phone app that people use to send money between friends and family. This month, the company, led by Jack Dorsey, who is also the CEO of Twitter, said its customers had $ 1.8 billion. In Bitcoin, an increase of 180 percent from the previous year.
Last month, analysts at JPMorgan Chase wrote a widespread note about how the use of Bitcoin as an alternative to gold – especially by younger investors – created a significant market for tokens. Given that the total value of all outstanding Bitcoin, around $ 350 billion, was a small fraction of all gold in the world, analysts said they could see the value of Bitcoin go much higher.
Bitcoin’s rally is accompanied by a wider bull market in cryptocurrencies, just like in 2017. While much of the glow three years ago was centered on new coins from scam so-called introductory coin deals, interest has shifted to coins trying to take part in is known as decentralized financing or DeFi. These systems, which remain buggy and untested, aim to make it possible to take out loans and insurance or charge interest without involving any financial institutions.
Central banks from countries such as Singapore, Sweden and the Bahamas are also looking at creating national digital currencies that are partly inspired by Bitcoin. The largest project by China’s central bank appears to be the longest.
The national currencies, which would leave Bitcoin volatility, could make cryptocurrencies obsolete. But they could also make it easier to move in and out of digital currencies of any kind.
Given the uncertainty surrounding the value of Bitcoin, any tension is likely to be followed by another contraction. But the number of crashes that Bitcoin has survived is changing the conversation around the technology.
“Now it’s LeBron James playing at the age of 21 and starting to dominate the pitch,” said Saylor. “It’s not LeBron James, 13, who is temperamental. You have a hardening and a maturation of the asset. ”