Bitcoin, the virtual currency, hit a new all-time high of $2,967 Tuesday, after having roughly tripled this year.
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Given bitcoin's history and unregulated nature, a tumble at some point seems inevitable.
The currency's backers don't necessarily disagree. They just don't care.
"This is probably the third or fourth bubble, if you want to call it that, in digital currency that we've gone through," said Brian Armstrong, founder and chief executive of bitcoin-services firm Coinbase.
These waves tend to bring hype and volatility, but also new money, new ideas and new people to the currency and its offshoots. The result is that the world of cryptocurrencies is larger than it was before.
"A bunch of new people who had never heard about it are going to learn about it," said Mr. Armstrong.
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Tony Horsley, a 78-year-old Atlanta investor whose portfolio includes 12 stable companies including Apple Inc. and Berkshire Hathaway Inc., says bitcoin's huge price run-up in the past two months made him curious and gave him an idea to add "a little excitement to the mix." "When you get to my age, you can afford to take a few risks," Mr. Horsely said. "My portfolio of 12 stocks is boring."
A stateless currency launched in 2009, bitcoin isn't controlled by any one entity or government. Maintained by a decentralized network of computers, it is designed to quickly and cheaply match users with each other, sidestepping middlemen like banks.
The number of people actually using bitcoin is hard to pinpoint, but each new leg up in the price increases its mainstream exposure. It has been used for nefarious purposes like ransomware and drug trafficking. It also appeals to investors who don't trust their home currency and to entities in developing economies that want more efficient international payments.
Nairobi, Kenya-based BitPesa says it has helped 6,000 users across 85 countries send and receive payments in bitcoin. Global entrepreneurs have launched hundreds of bitcoin-like tokens known as "initial coin offerings," an alternative to venture-capital funding.
Many investors pay for the tokens with bitcoin or a rival virtual currency called Ethereum. The trend has helped spur demand for both.
Elizabeth Rossiello, BitPesa's co-founder and CEO, says regulators from the U.K. to Luxembourg are increasingly recognizing bitcoin's legitimate uses. "We stopped hearing, 'Go away, it's gonna die'," she says.
Under a new law, Japan's Financial Stability Agency started recognizing the digital currency as a payment method. Investors have responded by putting new money into bitcoin, and companies ranging from discount-airline Peach to energy company Nippon Gas Co. are accepting it.
Most of the gains this year, about $1,800 per bitcoin, happened since April 1, according to data provider Coindesk. The number of daily transactions on bitcoin's network has roughly tripled to around 300,000 from about 100,000 two years ago.
The currency, which eased off its record Tuesday morning to $2,878, now has a total market value of $46 billion, up from $15.3 billion on Dec. 31, 2016, according to CoinMarketCap.
Still, that is tiny compared with the $1.5 trillion of U.S. currency in circulation. And all the bitcoin in the world are still worth less than the $65 billion market value of electronic-payments company PayPal Holdings Inc., not to mention most big banks and technology companies.
What keeps bitcoin believers invested is the notion that the currency is still in the earliest stages. They remain convinced bitcoin will find a use that results in its widespread adoption, which in turn would cause its value to keep soaring.
Until then, the roller coaster ride in bitcoin value creates winners and losers, even as the surrounding publicity helps expand bitcoin's appeal and put the currency at a higher "plateau," as Coinbase's Mr. Armstrong described it. In recent weeks, Coinbase has been putting together a funding round that would value the company at $1 billion, which would make it one of the most valuable companies focused on digital currencies.
Bitcoin enthusiasts expect jarring turns in the price. "Markets work in bubble cycles," said Charlie Shrem, chief business officer of Jaxx, a cryptocurrency-services business based in Toronto. "There will be a bust, people will get wrecked."
Mr. Shrem knows from experience. The 27-year-old Brooklyn native bought his first bitcoins in 2011 for somewhere around 45 cents each. He rode a wave up, co-founding an early exchange called BitInstant and became one of the first crop of bitcoin millionaires.
In 2014, he was arrested for money laundering and running an illegal money transmitting business. He pleaded guilty to reduced charges, and served just over a year in prison. He said his bitcoin fortune was eaten up by lawyers' fees but he is as bullish on the currency today as he was six years ago.
Backers argue bitcoin's most interesting uses are years away, just as iPhones followed long after the internet. Some early work has focused on bitcoin as a vehicle for international micropayments, supplanting a process that now can require multiple bank intermediaries.
Another possibility is that bitcoin will be used to fund startups through initial coin offerings. ICOs, as they are known, are one the most meaningful catalysts for digital currencies' price surge this year, according to Eric Piscini, a principal at Deloitte Consulting LLP who specializes in virtual currencies.
Bitcoin also could evolve as a sort of gold 2.0, a digital store of value that can hedge against market volatility while protecting savers and investors against governments' economic mismanagement.
Jeff Garzik, an early bitcoin developer who now runs a company that specializes in the technology underpinning bitcoin, says more gold investors will someday turn to bitcoin.
The current bitcoin moment, he says, "is nothing compared to what you'll see."
Write to Paul Vigna at email@example.com
(END) Dow Jones Newswires
June 06, 2017 13:59 ET (17:59 GMT)