By Juliana Kaplan
Bitcoin is having a moment — again.
The cryptocurrency, which was created in 2009, surged above its previous December 2017 peak on Monday, gaining 177% year to date to $19,857.03.
A cryptocurrency is essentially digital currency, with a decentralized database that contains all of the currency’s transactions. Instead of being backed by something like gold, bitcoin has code behind it. Its main advantage is there’s no primary owner (like a bank), but instead a network that anyone can join, which powers the currency.
Bitcoin is powered by blockchain technology, and every bitcoin transaction is permanently recorded. Its famous “miners” process all new transactions, and then use cryptography to add them to the database. Its creator, the mysterious “Satoshi Nakamoto,” is still unknown. It’s a buzzy alternative investment for the internet generation, but it’s also famously volatile — and has its fair share of skeptics.
Back in 2017, bitcoin had what Business Insider described as a “wild run,” rising by over 1,300% and going mainstream with Times Square ads and celebrity endorsements including Floyd Mayweather. But bitcoin took a mighty tumble the next year, falling 80% from its peak, while other cryptocurrencies also slumped. Still, it’s the world’s best-known (and most popular) cryptocurrency, and is seen as a standard-setter.
The hype now is back close to — or even beyond — 2017 levels, with millennial celebrities especially curious.
For instance, “Game of Thrones” actor Maisie Williams asked her millions of Twitter followers if she should go long on it, and billionaire Mike Novogratz responded with a buy recommendation, saying he expected the price to hit $65,000.
Williams isn’t the only one contemplating bitcoin: Inigo Fraser-Jenkins, Bernstein Research’s co-head of portfolio strategy, wrote in a note to clients that he had changed his mind about the cryptocurrency. He believes that bitcoin now has a place in investor portfolios.
So what’s changed?
For Fraser-Jenkins, the difference is the economic fallout from the pandemic — such as higher taxes and inflation — coupled with bitcoin’s declining volatility over the past three years.
But there’s no one clear reason why the cryptocurrency has rallied so tremendously — it’s probably a confluence of factors. The pandemic is a big one, with more investors looking to bitcoin as a steady alternative that won’t be impacted by potential inflation.
It’s also now more widely available to use and trade. Prospective bitcoin users can now actually buy and sell it on services including PayPal and Square. Starting in 2021, PayPal users will even be able to use it in exchange for goods and services. Fidelity Investments even started its own bitcoin fund in August.
The cryptocurrency could also have a government ally on Wall Street. President-elect Joe Biden has appointed to his transition team Gary Gensler, a figure with deep knowledge and experience about cryptocurrencies, who’s also seen as friendly toward the alternative asset class.
But, much like its creator and its origins, when it comes to bitcoin’s value, there’s always considerable mystery.
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