Bitcoin is back. Again.
Nearly three years after rising by a hair and reaching a peak of $ 19,783, the price of a single bitcoin rose above that for the first time on Monday, according to data and news provider CoinDesk. The cryptocurrency has jumped since March after sinking below $ 4,000 at the start of the coronavirus pandemic.
Bitcoin’s latest rise is different from its last jump in 2017, which is mainly due to investors in Asia who have just learned about cryptocurrencies. Then the digital token soon lost momentum as people doubted what it could do other than allow easy online speculation and drug and ransom payments.
“This is a completely different set of people who have been buying bitcoins recently,” said Philip Gradwell, chief economist at Chainalysis, which analyzes the movement of cryptocurrencies. “They do it in more stable quantities for long periods of time and take it off the stock exchanges and keep it as an investment.”
The excitement is backed by regulators and major financial companies trying to make cryptocurrencies safer and more accessible. The currency controller’s office, a US regulator, said this summer that banks would be allowed to hold cryptocurrencies for customers. And PayPal announced last month that it would follow its competitive square and allow people to buy and hold bitcoin and several other cryptocurrencies.
“Our move came as a result of talks with government officials, and then we saw the dramatic shift to digital payments as a result of the pandemic,” Dan Shulman, PayPal’s chief executive, said in an interview. More than one million people – three to four times more than the company expected – joined the waiting list to use cryptocurrencies before the feature was launched, he said.
The rise of bitcoins is part of a greater abundance of cryptocurrencies and stock markets that oppose the darkness of a pandemic recession. The Dow, S&P 500 and Nasdaq reached record highs this month, with Wall Street backed by the presidential election and news of potential coronavirus vaccines.
Bitcoin is a digital currency with software and rules issued in early 2009 by a shady creator nicknamed Satoshi Nakamoto. The computer code found that the total supply of bitcoin would be limited. Only 21 million tokens will ever be created, distributed in small blocks each day – through a process known as mining – to some of the computers that support the currency’s online infrastructure.
Like gold, bitcoin can be created, moved and stored outside the competence of any government or financial institution. Bitcoins exist in a financial book known as the blockchain, which is maintained and updated by a volunteer network of people running thousands of computers around the world, a system designed 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 providing as much name as phone or number – has made it popular for those who want to bypass the traditional financial system. These include terrorists, drug dealers and countries such as North Korea, Venezuela and Iran who want to avoid US financial sanctions.
“This technology already plays a role in many of the most significant threats to crime and national security facing our nation,” the justice ministry said in a report last month. The report describes how deeply bitcoin has been woven into the infrastructure of the underworld.
But the nature of stateless Bitcoin has also won over investors interested in the legal use of the technology. Some are motivated by libertarian distrust of governments. Others, who are less ideological, have gravitated to Bitcoin as an alternative to the financial system.
Yet Bitcoin is not supported by anything other than its computer network and the faith of the people who buy it and add value to the stock exchanges. Many of these people bet that someone else will be willing to pay them more for their bitcoins in the future.
This made bitcoin prices volatile. It fell to its latest level in March, when fears of a pandemic hit world markets. Soon after, however, investors began talking about bitcoin as a beneficiary of the global downturn.
In May, Paul Tudor Jones, one of Wall Street’s most prominent hedge fund managers, said he had invested nearly 2 percent of his portfolio in bitcoin. He said the restriction on bitcoin production makes it an attractive alternative to the declining value of traditional currencies, which he said is inevitable as central banks print more money to boost economic recovery.
“Every day bitcoin survives, trust in it will increase,” Jones told CNBC at the time. He did not respond to a request for comment on this article.
Some public companies have also sunk into bitcoin over concerns about the value of the dollar. In August, MicroStrategy, a software company in Virginia, said it had bought $ 250 million in bitcoin to store some of the money it had in its corporate treasury.
Michael Sailer, CEO of MicroStrategy, said in an interview that since he knew almost nothing about bitcoins earlier this year, he believed in how a hard-coded token limit would help him maintain his value over time. the weather. He became so enthusiastic that he invested $ 175 million of his own money in the currency. MicroStrategy later bought another $ 175 million in bitcoin.
“For everything that someone has invested in as a stock of value, it’s starting to look better to move to bitcoin,” Mr Sailor said.
In October, Square said it was investing $ 50 million of its corporate money in bitcoin. In 2018, Square also began 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, run by Jack Dorsey, who is also Twitter’s chief executive, said its customers hold $ 1.8 billion in bitcoin, up 180 percent from a year ago.
Last month, analysts at JPMorgan Chase wrote a widely circulated note on how the use of bitcoin as an alternative to gold – especially by younger investors – creates a significant market for tokens. Given that the total value of all outstanding bitcoins, about $ 350 billion, is a small fraction of all the world’s gold, analysts say they can see the value of bitcoins rising much higher.
The Bitcoin rally is accompanied by a wider bullish cryptocurrency market, just as it did in 2017. While three years ago much of the fervor was focused on new coins from fraudulent so-called initial coin offerings, interest shifted to coins that trying to participate in is known as decentralized financing or DeFi. These systems, which remain buggy and unproven, aim to allow for the taking out of loans and insurance or the collection of interest without the involvement of financial institutions.
Central banks in countries such as Singapore, Sweden and the Bahamas are also seeking the creation of national digital currencies, inspired in part by Bitcoin. China’s central bank’s largest project appears to be the furthest away.
National coins, which would leave the instability of bitcoins, could make cryptocurrencies obsolete. But they could also make it easier to move and exit digital currencies of all kinds.
Given the uncertainty surrounding the value of bitcoin, any excitement is likely to be followed by a new contraction. But the number of crashes that bitcoin has survived is changing the conversation about technology.
“LeBron James is now playing at the age of 21 and is starting to dominate the court,” said Mr Sailor. “It’s not LeBron James, 13, who explodes. You have a hardening and maturing of the asset. “