But Bitcoin prices have gone up more than double since lows around $70 in July. And longer-term, Bitcoins have gone from a value of about $20 to start the year to $190 or so currently — so despite the volatility, it’s hard to argue that there has been a real “crash” in Bitcoin prices this year.
Partly because of a desire to move away from gold — which has crashed more than 20% so far in 2013 despite a big run for Bitcoin — and a fear of investing in stocks after a frothy run over the past year or so, Bitcoin is in the right place at the right time. As an alternative currency to the U.S. dollar but also an alternative to stocks, the appeal is obvious.
The hitch has been, then, the legitimacy of Bitcoins and perception issues about the digital currency as a bit of a joke.
However, with each passing day, Bitcoin investing gets more legit.
Bitcoin Investing Moves Maintstream
In July, we got word of the the Winklevoss Bitcoin Trust — an investment vehicle launched by the Winklevoss twins, who were famously embroiled in a dispute with Mark Zuckerberg over who came up with the idea for Facebook (FB).
Then in September, the alternative stock exchange SecondMarket began raising money for a Bitcoin investment fund.
Now, Chinese Internet stock Baidu (BIDU) has started talking Bitcoin. According to reports, Baidu’s Jiasule unit, which provides online security services, began accepting the currency as an approved form of payment.
The Baidu move is telling, because the command-and-control nature of China means the currency likely would not have gotten approval as payment without concurrent approval from Chinese officials.
Bitcoin Still Has Risks
While gold is on the outs, Bitcoin continues to make inroads as the alternative currency of choice.
But it’s undeniable that Bitcoin prices remain highly volatile and that the recent gains could easily be eclipsed by a severe dip in the near future.
And there still are troubles with Bitcoin being used for off-the-books enterprises that are less than reputable. Take the shutdown of Silk Road, a website that was used for drug trafficking, which accepted Bitcoin as a payment source because of its lack of a paper trail.
However, the recent volatility and closure of Silk Road could help spark legitimacy in Bitcoin. As the alternative currency suffers these growing pains, it always seems to normalize … and then winds up marching higher.
Despite the huge spike in trading volume for Bitcoin around the Silk Road disaster, the digital currency did not implode — and in fact resumed its march higher.
And as more merchants around the world start to at least entertain Bitcoin as a payment option, the more the argument shifts in favor of this emerging asset class having a viable future.
Who knows what the future will hold for Bitcoins. It’s admittedly a quirky concept born out of both the digital age and a mistrust of the old order of things, so there’s clearly a niche for this kind of thing out there.
But however things end with Bitcoin, it’s worth noting the sentiment that has given it life is not going away. A great many people distrust central bank actions, worry about the risk of equities and are looking for a safe haven to park their money in.
If not Bitcoins, then some other similar vehicle might find its way into the mainstream soon. Because there clearly is demand.
Related Reading on Bitcoins
- On the Second Market move to include Bitcoins, and the Winklevoss Bitcoin Trust. (The Slant)
- More on the Winklevoss twins’ bet on Bitcoin. (Reuters)
- How Silk Road’s loss could prove to be Bitcoin’s gain. (The New Statesman)
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.