The value of Bitcoin has hit a new high with each individual coin now worth more than $2,100 (£1,615).
The valuation caps a strong month for the virtual currency, with its value growing by more than 65% in a month.
The steady rise in value is believed to be linked to policy changes in Japan and China that have made it easier for speculators to trade in bitcoins.
Many other virtual currencies have also enjoyed a sustained rise in value over the last few weeks.
Bitcoin first broke the $1,000 (£768) barrier in November 2013 but its value has fluctuated wildly since then. For instance, in early 2014 one bitcoin was worth only $280 (£215).
And at the end of 2016, each one was changing hands for about $900 (£690).
Bitcoin emerged in 2008 and is a digital currency based around cryptography. Individual coins can be split into smaller denominations and many people involved with the currency use computers to verify the globally-held log, known as the block chain, of who spent what where.
Verifying transactions involves solving a complicated mathematical problem and the first person to do so gets rewarded with bitcoins.
Rising interest in bitcoin has sparked the creation of many other crypto-currencies. These have proved popular as the technology underlying bitcoin has struggled to cope with its popularity and growth. One estimate suggests bitcoins now make up only 47% of all traded crypto-currencies.
Rivals such as Ethereum and Ripple have been gaining value far faster than bitcoin over the last few months.
The surging valuations has led some commentators to suggest that an unsustainable crypto-currency bubble is developing.
“The question is not if but when the market will turn,” said an editorial in The Economist.
New kids on the block chain – A surge in the value of crypto currencies provokes alarm
Bitcoin is far from the only game in town
IT IS hard to predict when bubbles will pop, in particular when they are nested within each other. It helps to keep this image in mind when considering one of the biggest surges in asset values of recent years: the market value of all the world’s crypto currencies has trebled since the beginning of the year, and is now worth more than $60bn (see chart).
Bitcoin is the best known of these currencies, especially after hackers this month instructed victims to pay ransoms in the anonymous digital cash in order to get their computer files decrypted. Not that many bitcoins exist: there are about 16.3m of them, with only 1,800 new ones minted every day. But growing demand has pushed bitcoin’s price to a record recent high of about $1,830, up from $450 a year ago.
Problems abide. Earlier this year some of the biggest exchanges, such as Bitfinex, experienced problems with their correspondent banks and were unable to pay out real-world currencies to account-holders. To get their money out, they had to buy bitcoin and exchange them elsewhere. Yet the market is becoming more mature: institutional investors, from family offices to hedge funds, have become more comfortable with crypto currencies, says Mike Komaransky of Cumberland Mining, which arranges over-the-counter trades. Other factors driving demand include fluctuations of China’s yuan, the French elections and, in a small way, the ransomware attack (when The Economist went to press, only about $80,000 had been sent to the bitcoin accounts held by the hackers).
Counter-intuitively, bitcoin’s biggest weakness—the system’s limited capacity—has also increased demand for crypto currencies. Its developers have argued for years about how to expand the system, which can only handle seven transactions per second, compared with thousands on conventional payment services. Even before worries surfaced that the currency could split in two over the disagreement, bitcoin holders started to diversify into some of the many other crypto currencies, or “alt.coins”, to emerge in recent years. Coin Market Cap, a website, lists more than 800, from Arctic Coin, an obscure Russian currency, to ZCoin, which boasts added privacy. The latest beneficiary is Ripple, which saw its market value explode from $2bn early this month to over $13bn. Ethereum, which issues “ether”, has jumped from $700m in January to $8.6bn.
Ethereum’s surge in turn helped inflate another bubble. Feeling richer, holders of ether started investing in what have come to be called initial coin offerings. Startups sell “tokens”, sub-currencies of sorts, which exist on top of Ethereum. A total of 38 such ICOs have already been launched this year, raising more than $150m, according to Smith+Crown, a research firm. This has lured even more money into crypto currencies. Some of the gains have found their way back into bitcoin and alt.coins. Trading between crypto currencies has grown tenfold to $2bn on average a day, says Erik Voorhees, the founder of ShapeShift, a crypto-to-crypto exchange.
The question is not if but when the market will turn. Even crypto aficionados may run for the exits should bitcoin bifurcate or if one of the ICOs, which are completely unregulated, goes badly wrong—if issuers, for example, abscond with the money. Prices will also suffer should regulators start clamping down on such offerings.
On the other hand, although it is now easy to buy crypto-currencies for real cash, selling big amounts can be hard—as the woes of Bitfinex and others show. This makes sudden outflows unlikely. And the price surges have shown how the crypto-currency system is no longer just about bitcoin. Although it is still the biggest kid on the blockchain and functions, in effect, as a crypto-reserve currency, it now makes up under half the combined market capitalisation of all crypto-currencies. Come a crash, they may not all fall.
Bitcoin just surged past $2,000 for the first time
The world’s most popular crypto currency is now worth over $2,000 per coin. That’s according to a range of bitcoin exchanges, including Coin base and Kraken. That valuation puts the total market cap of bitcoin — the total number of coins in circulation — at $32.92 billion.
Bitcoin first broke the $1,000 valuation mark way back in 2013, but a combination of factors — including the implosion of then-top exchange Mount Gox — saw the currency drop in value. Support from financial institutions trialed bitcoin and block chain based services, and a general stability following new regulation in China, saw bitcoin return to the $1,000 mark again at the end of last year. Since then, its valuation has continued to grow consistently through 2017.
When we wrote about bitcoin (and ethereum) hitting all-time highs back at the end of April, you could buy a bitcoin coin for $1,343. Now, some three weeks later, the valuation is up 50 percent. The price of a coin rose 12 percent over the past week alone.
But bitcoin isn’t the only crypto currency on the rise. Ripple, the centralized currency that is aiming to be a settlement protocol for major banks, has surged more than 10x, or 1000% in under a month making it now the second most valuable crypto currency (only behind bitcoin) in circulation.
Similarly, ethereum, a crypto currency designed to function as a block chain based computing platform for developers, is now trading $130 per coin with a total market cap of just under $12B, which represents a a little more than a 2x increase over the last month.
Why have these other crypto currencies been performing so much better than bitcoin? Some say it’s because of bitcoin’s scaling issue. The currency has grown so large that the network is having trouble quickly confirming transactions unless users attach hefty fees for minors. And while the problem can be fixed with solutions like SegWit or Bitcoin Unlimited, the most powerful miners (who effectively control the code base of bitcoin) haven’t been able to come to a consensus on which new protocol to implement.
While increases of 10x in a month would typically be an obvious sign of a bubble, it’s a little different with crypto currencies because no one really knows how much they should be worth. Unlike a company there are no assets or revenues we can use to assess a predictable valuation. So in one sense, a total crypto currency market cap of $70B is insane – considering there is no tangible value behind it.
But on the other hand, if (any of) these crypto currencies actually replace or supplant a global store of value like gold, then $70B is nothing. For example, the total estimated value of all gold mined is around $8.2 trillion USD. Meaning that right now all crypto currencies put together don’t even equal 1% of the world’s gold reserves. Similarly, there is currently about $1.5 trillion USD in circulation, meaning that all crypto currencies today are still worth less than 5% of USD in circulation.
The currency is in un-chartered waters at $2,000, but some pundits believe it has the potential to reach $10,000 (or more). To achieve this the community would likely have to sort out the scaling issue, which would give investors confidence that bitcoin’s infrastructure be able to support it as it grows.