Bitcoin is moving increasingly mainstream, grabbing headlines and sparking the launch of new financial products on Wall Street as of late.
Click to Enlarge And thanks to investor demand, Bitcoin prices have hit $270 this week to mark a new all-time high.
Now that Bitcoin price have fought back from the spring volatility, the digital currency has in fact surpassed price levels that prompted some pundits to call Bitcoins the next asset bubble a few months ago.
So is Bitcoin a legitimate alternative currency, or a replacement for gold investing in your portfolio?
Bitcoin Prices Mask Risk
Well, one thing is for certain: Volatility remains the norm in Bitcoin prices even if the recent movement has been to the upside. Bitcoins have fluctuated wildly in valuation for months, and there’s no sign that is going to stop just because of recent headlines turning a bit more favorable.
Most experts speculate that the new record high appears to be driven by demand out of China, where yuan-to-bitcoin trading in recent weeks has hit record levels on BTC China, the top Chinese Bitcoin exchange. So big-time Chinese speculation might be a further sign of volatility to come instead of some indication of sustainable growth in the Bitcoin market.
There also are disparities among the many Bitcoin exchanges out there, where prices can vary 5% or more from site to site — making things even more interesting.
In other words, don’t think that Bitcoin investing is a sure thing — some dynamics remain at play that will surely fuel future volatility.
Bitcoins Are Increasingly Popular
But one thing is clear: Either because of the greed of speculators or because of a philosophical connection to the alternative currency or simply because Bitcoins are a digital curiosity, the conversation about Bitcoin prices and investing has moved mainstream.
In July, we learned about plans for a Winklevoss Bitcoin Trust — the brainchild of 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.
In October, Chinese Internet stock Baidu (BIDU) 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.
Like it or lump it, Bitcoin prices are becoming increasingly public and investing in Bitcoins is moving into the mainstream.
That visibility comes with increased pressure, of course, so it will be interesting to see where the currency goes from here.
Judging by recent all-time highs, the answer seems to be “up.”
More on Bitcoin
- How Bitcoin investing is moving mainstream. (The Slant)
- The shutdown of Silk Road may have been bad press, but a necessary step towards legitimizing the digital currency. (The New Statesman)
- More on the Winklevoss twins’ bet on Bitcoin. (Reuters)
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.