Long off the public radar, digital payment network bitcoin has been gaining momentum this fall, bolstering the views of some advocates that bitcoins will be a mainstream currency worldwide in the not-too-distant future.
The value of a bitcoin surged to more than $400 the week before last, from its low this year of $177.28 in mid-January. Meanwhile, the technology known as blockchain that underlies bitcoin trading is slowly being adopted for uses far removed from currency.
Analysts also are getting more bullish on the bitcoin system.
“We believe bitcoin and its associated blockchain technology have the potential to disrupt the existing financial infrastructure over the next several years, and believe the value of the bitcoin currency will benefit from this trend,” Gil Luria, an analyst at Wedbush Securities in Los Angeles, wrote in a recent research report.
For the last three years, the virtual currency has struggled with wild price fluctuations that hit more than $1,100, a murky regulatory status and its use on the internet’s dark side, including sale of illegal substances.
Though the price had fallen since last week and hovered around $330 on Thursday, the recent rally has renewed more favorable attention on the virtual currency than it faced early last year in the collapse of the biggest bitcoin exchange, Mt. Gox.
The price of a bitcoin surged past the $400 mark the week before last for the first time in more than a year before pulling back, but it’s still up 25 percent in the last month and more than 72 percent from its January lows. Although the reasons for the recent rally are unclear, analysts point to an upsurge in bitcoin trading in China as one reason for the growing momentum, saying the surge may reflect attempts to move money out of the country as the economy slows and financial markets fluctuate.
Luria said the price bump also may have been partly driven by recent Chinese regulatory changes allowing for easier transfer of money out of conventional bank accounts to bitcoin exchanges. But he said deeper currents also have been pushing up the price.
“The long-term price is driven by how many people use it for actual economic applications,” he said. “The price of bitcoin has sort of caught up to the usage.”
In his report, Luria said that the number of bitcoin transactions per month has grown from about 1 million in October 2012 to more than 4 million last month, and he forecasted a price target of $600 a year from now. He estimated that the market for online payments, money transfers and other uses for bitcoin will grow from about $8.6 billion last year to about twice that by 2025.
“The fluctuations that happen day-to-day don’t matter,” said Jerry Brito, executive director of Coin Center, a nonprofit virtual-currency research center, noting that deeper trends are embedding the currency in the economy. “It’s part of a long march toward normalcy.”
Under a recent federal court order, the U.S. Marshals Service sold 44,341 bitcoins worth more than $17 million in its fourth bitcoin auction of assets seized in the prosecution of Ross Ulbricht, founder of the online black market Silk Road. The government sale of bitcoins is seen as one more mark of legitimacy for the currency as a store of value.
Also, in a September enforcement action against San Francisco startup Coinflip Inc., the Commodity Futures Trading Commission referred to bitcoin as a commodity, lending further regulatory legitimacy to the currency, observers said.
Meanwhile, prominent new players are entering the business, led by the opening last month of Gemini, a new Bitcoin exchange backed by internet entrepreneurs Cameron and Tyler Winklevoss.
To be sure, Bitcoin has a long way to go. The total value of bitcoins is still a little more than $6 billion, a rounding error in the multitrillion-dollar currency markets.
As a decentralized digital currency that uses peer-to-peer technology to operate without a central authority, bitcoin potentially has a large effect on the international money exchange and transmission business now dominated by big banks and players such as PayPal and Western Union.