The bitcoin bulls are running.
Bitcoin's value has been skyrocketing of late, and on Tuesday it broke the $10,000-per-coin mark for the first time, just two days after passing $9,000. The cryptocurrency was trading at $10,034 as of this writing, an increase of more than 900 percent since the beginning of the year.
Tuesday's trading price gives bitcoin a market capitalization of $168 billion, greater than the vast majority of S&P 500 companies, including Dow 30 components Boeing, Disney and GE.
Since its founding in 2009, bitcoin has made a name for itself by allowing for anonymous transactions. The digital currency is now accepted by more than 100,000 merchants worldwide, including Microsoft, Dish and Subway.
The cryptocurrency has experienced a massive run in 2017. On January, 1 this year, bitcoin was priced at just under $1,000. Still, the cryptocurrency's lack of government backing and regulation has led to volatility, and the milestone comes amid growing concern bitcoin is on the edge of a bubble.
"This is a bubble and there is a lot of froth. This is going to be the biggest bubble of our lifetimes," hedge fund manager Mike Novogratz told Bloomberg at a cryptocurrency conference Tuesday in New York.
Novogratz predicted last week that the cryptocurrency would end the year at $10,000, according to Bloomberg, while Fundstrat's Thomas Lee doubled his price target to $11,500 by the middle of 2018. The virtual currency hit a high of $10,903 in Asia, according to Bloomberg News, about 14 times its value at the start of the year.
The breakthrough is the latest in a spectacular run for the online money dubbed “digital gold” by its advocates, which began life in 2009 as a bit of encrypted software supposedly written by an unknown coder with a Japanese-sounding name.
Bitcoin, which was valued at just a few US cents when it was launched, has no legal exchange rate, no central bank backing it and is traded on specialist platforms.
What began as the preserve of computer nerds and financial experts has gained a following among a broader group seeking alternatives to traditional investments, while it has been used to pay for items from a pint in a London pub to a manicure.
The boss of JP Morgan Chase labelled it a fraud, while China has closed down Bitcoin trading platforms and South Korea this week expressed concern it could lead young investors to become embroiled in fraud.
It got a big boost last month when exchange giant CME Group announced it would launch a futures marketplace for Bitcoin, which has not been listed on a major bourse before.
The announcement sparked a surge in its value – it has risen 50 percent since October alone. The current market value of Bitcoin is now around $180 billion, according to Coinmarketcap.com, which tracks the market capitalisations of cryptocurrencies. That puts it within touching distance of Coca-Cola, which is worth $195 billion.
But the spectacular rate of growth, which has seen it increase in value from a 2017 low of $752 in mid-January, has also triggered concerns, with critics noting the currency has suffered wild swings in the past.
But other commentators were more positive, saying the unit’s surging popularity will attract cash from traditional investors, such as hedge funds and asset managers.
“I think the momentum is still very much to the upside,” Kay Van-Petersen, macro and crypto strategist with Saxo Bank in Singapore, told AFP. He said it could still suffer pullbacks, but predicted it would be worth $50,000 to $100,000 in the next six to 18 months.
Transactions happen when heavily encrypted codes are passed across a computer network. Bitcoin and other virtual currencies use blockchain, which records transactions that are updated in real time on an online ledger and maintained by a network of computers.
In one of the most high-profile scandals, major Tokyo-based Bitcoin exchange MtGox collapsed in 2014 after admitting that 850,000 coins – worth around $480 million at the time – had disappeared from its vaults.
Bitcoin’s use on the underground Silk Road website, where users could use it to buy drugs and guns, was also presented as proof it was a bad thing.
While analysts expect the currency to suffer falls, they are betting it will prosper in the long term and see the CME launch as the next big test.
“If it survives the CME, there is no reason why it won’t continue to rise higher,” Greg McKenna, chief market strategist at AxiTrader, told AFP.
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