Bitcoin surpassed the $ 17,000 record on Thursday, a dizzying race for a digital currency that was worth less than $ 1,000 at the beginning of the year and that was once largely the concern of technologists or those seeking to avoid scrutiny to launder money or buy drugs and weapons online.
The rapid rise – it has increased more than 40 percent just this week – is creating a shopping frenzy among eager speculators around the world and helps push the bitcoin into the mainstream. But it is also forcing US regulators. UU To deal with the legitimacy of a product that operates outside the control of any government or financial institution.
The increase in price occurs when Bitcoin enthusiasts prepare to reach a new benchmark. On Sunday, a bitcoin product will be marketed for the first time in a US financial market, making it almost as easy to bet on the virtual currency as oil, corn or the euro.
The measure will give it an "appearance" of legitimacy, said Mark Williams, a former Federal Reserve official who teaches finance at Boston University. "From the investors' point of view, that could give you a false sense of protection."
In fact, many industry experts warn that the United States is not prepared for the bitcoin entry into the financial markets. As bitcoin prices set records, hackers this week allegedly won $ 70 million in digital currency after targeting NiceHash, a cryptocurrency platform. The Futures Industry Association, which includes Goldman Sachs and JPMorgan Chase, has complained that the bitcoin investment process is moving too fast. "We remain apprehensive about the lack of transparency and regulation of" bitcoin, "the group said in a letter earlier this week.
Such warnings have not stopped the madness surrounding the currency, since the sharp rise in In South Korea, ordinary people are pouring their life savings into bitcoins and other digital currencies, and in Venezuela, after observing the increase in bitcoin, the government announced that it would launch its own virtual currency called "The Petro" to avoid US sanctions
Bitcoin was created for the first time in 2009 under mysterious circumstances, little is known about who originally came up with the idea. a digital currency, without physical currencies such as dimes or nickels, and was accompanied by an online payment network, similar to Paypal, but unlike Paypal, the bitcoin transaction system is not proprietary Nobody's.
Its decentralized and democratic nature gave it a special attraction among technologists and some international criminals. Only buyers and sellers, instead of the central bank of a government, can change its value. Transactions between accounts are recorded in online ledgers and publicly published prices in exchanges such as Coinbase's GDAX, one of the indexes that track the value of bitcoin. GDAX reported Thursday that the price of Bitcoin is more than $ 17,000.
Cryptocurrencies initially gained followers among technology enthusiasts. It has also proven popular among people seeking to buy drugs in online markets outside the network without being detected by the police. When federal authorities closed one of those markets called Silk Road in 2014, they confiscated 26,000 bitcoins worth approximately $ 3.6 million.
"The people who started using Bitcoin years ago were the ones who could not use anything else," said Nicolas Christin, a security researcher at Carnegie Mellon University.
Trust in the virtual currency has been repeatedly shaken by spectacular failures, including the 2014 implosion of the largest bitcoin exchange of its time, Mt. Gox, which filed for bankruptcy after $ 400 million in bitcoin was allegedly stolen. Hackers are still a threat and sometimes bitcoins simply disappear after their owner forgets or loses passwords for their accounts.
"The 10% of bitcoin that was generated to date was lost forever," said Williams of Boston University. "That's billions and billions of dollars."
But these setbacks have been followed by rapid rebounds. Some retailers, such as Overstock.com and Subway, began accepting bitcoins as payment several years ago and bitcoin ATMs are available in some cities, making it easy to buy the currency. Brokers, such as Coinbase, based in San Francisco, have developed applications to facilitate the purchase and sale of bitcoins from a personal computer or a smartphone.
However, for Wall Street investors, bitcoins have remained a marginal, too uncomfortable, and potentially dangerous, product to buy and sell. On a typical day, the price of a single bitcoin can go up or down 10 percent or more, the kind of inconstancy that would send panic through traditional stock markets.
But investors find it hard to ignore bitcoin since its collective value passes $ 250 billion, more than the gross domestic product of Vietnam and Greece.
The growing popularity of the currency has divided the world of investment. Jamie Dimon, executive director of JPMorgan Chase, the largest bank in the United States, has ruled out bitcoin as a "fraud". "If you're stupid enough to buy it, you'll pay the price one day," he said. He said last month.
However, Bill Miller, a legendary investor famous for producing better returns than the Standard & Poor & # 39; s 500 for 15 years in a row before hitting a rough stretch, has been investing in bitcoin for years. Bitcoin remains "speculative" and could easily fall by 50 percent, he said. But "he has been a great winner for us."
Until now, investors who want to bet on bitcoin prices in a traditional way have had to do so in Europe or Asia. But these overseas markets are often too small and flexibly regulated to attract large US investors, said Michael Unetich, vice president of cryptocurrencies at Trading Technologies, which provides commercial software. Some have even closed or been victimized by hackers, who steal their bitcoins, he said.
"They are not seen as legitimate by institutional investors," such as hedge funds, Unetich said.
There has been an ambivalence in the United States. Earlier this year, the Securities and Exchange Commission rejected a request from Cameron and Tyler Winklevoss, the famous twins for suing Mark Zuckerberg for the creation of Facebook, to create a bitcoin product because of concerns that such exchanges might be vulnerable to "fraudulent or manipulative acts". "The Office of the Comptroller of the Currency, another financial regulator, has been slow to adopt new rules that could legitimize the bitcoin market, say industry experts.
William Dudley, chairman of the Federal Reserve Bank of New York he said recently that he remained cautious about the digital currency, saying that it was not a "stable deposit of value and does not really have the features that he would like to have in a currency."
However, he said: "It's something What we are beginning to think about: what it means to have a digital currency, what it means to offer it, we really need it. "
The Commodity Futures Trading Commission is allowing Cboe Global Markets and the Chicago Mercantile Exchange to offer a test. a bitcoin product, for example, that allows investors to bet on future changes in prices.The well-known Nasdaq could continue next year.
Cboe already h He has received significant interest in his new bitcoin product, said John Deters, its director of strategy.
"The interest we've seen is probably broader than anything we've seen before," said Deters. "We are really offering something different, a truly regulated and well-guarded market [bitcoin] with transparent rules and state-of-the-art technology."
However, Deters acknowledges, the bitcoin craze that has sent the value of the rising virtual currency, could dissipate once it reaches the regulatory rigors of a traditional commercial market.
"Nobody knows, we'll see what happens when people start participating," he said. "I think we are modest in terms of expectations."
For now, experts urge investors to be careful. There are dozens of places that quote slightly different bitcoin prices, many of which are small and could potentially be manipulated, they said. In addition, some bitcoin enthusiasts monopolize the virtual currency instead of using it to make a purchase, worried that its price goes up even more, making its purchase ridiculously expensive.
"As the price soars, it's hard to justify the sale, your bitcoin to buy a piece of furniture when tomorrow you could buy two pieces of furniture," said Jai Massari, partner at Davis Polk & Wardwell, which advises clients on financial regulation. .
But those who accumulated bitcoins could try to sell just as fast, and there is no doubt that they will find buyers ready, experts said, leading prices fell as fast as they rose.
Editor Thomas Heath contributed to this report.