Keith Ellison’s first hint that bitcoin was poised for a breakthrough was over the summer when a friend planning her nuptials sent an unusual text.
“She wanted to know whether to accept the wedding band’s offer of a discount in exchange for bitcoin,” said Ellison, a Manhattan Beach investment analyst, who advised the friend to decline.
Given the way bitcoin’s value was rising, there was no guarantee the friend would be able to afford the band when the bill eventually arrived.
“A lot of people are getting caught up in the mania,” said Ellison, who bought one-third of a bitcoin in July for about $1,000 and has seen it appreciate more than five-fold. “Even random wedding bands are encouraging people that likely know nothing about bitcoin to pay in bitcoin.”
Once the domain of technologists, libertarians and criminals, bitcoin has crossed into the mainstream, attracting interest from all walks of life with its soaring returns — while reviving memories of the dot-com bubble of the turn of the last century.
Bitcoin, a form of digital money unadministered by a central authority, shot past $16,000 apiece Thursday, up from about $1,000 at the start of the year. It was going for about $220 in early 2015 — meaning anyone who invested a mere $13,000 in bitcoin back then would now own $1 million in the emerging currency.
Returns like that are why investors are flocking to bitcoin to hold like stores of gold rather than use for frequent payments.
Others are getting into the business of mining bitcoin, the digital equivalent of printing cash in which a group of computers solves encrypted math problems to verify bitcoin transactions. The energy-intensive process poses a problem for bitcoin’s ability to scale up and handle massive numbers of transactions, but not serious enough to discourage the cryptocurrency’s supporters.
“There’s a lot of excitement that this thing we all believed in and thought could be a game changer is now entering the mainstream,” said Brian Klein, a partner at the Century City law firm Baker Marquart, who started evangelizing the potential of cryptocurrencies as early as 2013. “If it really succeeds, there’s no reason to think the price couldn’t rise to $1 million in 10 years. It got to $15,000 much quicker than anyone anticipated.”
Klein admits there’s also a chance bitcoin could nosedive — it’s been prone to wild swings, including on Thursday. But as an attorney who represents many early adopters of the cryptocurrency, he expects bitcoin to stabilize after some growing pains.
Klein’s expertise has made him a favorite among friends and acquaintances looking to pick his brain about bitcoin. Some previously skeptical friends have told him they regret not investing in bitcoin earlier. One colleague even reported that his house cleaner had inquired about buying bitcoin.
The frenzy has tested bitcoin exchanges struggling to keep pace with demand and prices. Coinbase, the world’s biggest exchange, said Thursday users were struggling to log in and that the platform was running slow due to record traffic.
Interest is expected to grow even more after bitcoin futures contracts will become available for trading later this month. That’s been met with some criticism by brokerages who say regulators haven’t fully assessed the risks of the new products.
“This is irrational exuberance,” Royal Bank of Scotland Chairman Howard John Davies told Bloomberg Thursday. “This is a very, very unusual market that shows we’re not in a normal two-way trading market.”
The burgeoning cryptocurrency industry is starting to draw scrutiny from the U.S. Securities and Exchange Commission. On Monday, the agency’s new cyber unit froze the assets of Canadian cryptocurrency firm PlexCorps during its initial coin offering — a sort of IPO for cryptocurrencies. The SEC’s complaint alleges PlexCorps falsely promised a 13-fold profit for investors in less than a month.
In November, the SEC warned celebrities not to promote initial coin offerings on social media. Stars such as DJ Khaled and boxer Floyd Mayweather Jr. have taken to social networks to boost some cryptocurrencies.
The novelty of bitcoin — and the unseen legal consequences — hasn’t spooked major companies from accepting the tender.
Last month, accounting firm PwC said it had started accepting bitcoin as payment for services. That follows a slew of other companies that had embraced the currency earlier.
E-commerce firm Overstock.com Inc. began accepting bitcoin as a form of payment in January 2014. The Salt Lake City company’s chief executive, Patrick Byrne, said at the time that the cryptocurrency appealed to him because it was free of government meddling. The company has since begun accepting other cryptocurrencies such as ethereum.
Expedia.com accepts bitcoin for hotel bookings, and technology giant Microsoft allows customers to trade in bitcoin at current market value and add it to their Microsoft account to be used to buy things in the Windows Store or stores that have Xbox games, Xbox music or Xbox video. Even the Sacramento Kings accept bitcoin to pay for team merchandise and tickets.
The clamor and skyrocketing values for bitcoin have naturally sparked fears of a bubble akin to the one marred by pseudo-internet companies nearly two decades ago.
Bitcoin advocates argue that crash was short-lived and that the internet remains indispensable — along with companies such as Amazon that survived the crash to become one of the biggest companies in the world.
For some new adherents, the lure of potential fortune far outweighs the risks.
Jeanne Macbeth, an Uber driver and production manager at a Christian missionary magazine, said she would soon leave Southern California for Washington state to go to school. She’s hoping to work with a former Tesla employee who quit the electric car company to mine cryptocurrencies full-time.
She noted that electricity prices were lower in Washington, making it far cheaper to mine bitcoin.
“It does seem to be a moment to get in on the ground floor,” said Macbeth, 32. “It’s kind of like investing in Amazon in 1999.”
The language of digital money
Cryptocurrency: Any digital money that is created, controlled and transferred using computer encryption. Most popular cryptocurrencies, including bitcoin and ethereum, are not issued or backed by a central government, though some governments have tinkered with creating digital currencies of their own.
Bitcoin: The original cryptocurrency, created in 2009. The currency traded for a few hundred dollars per coin for most of the past few years but has seen its price skyrocket this year, climbing from about $1,000 to upwards of $15,000 — with a few deep plummets along the way.
Blockchain: An accounting tool that underpins bitcoin and other cryptocurrencies and that is thought to have numerous applications outside of cryptocurrency, such as logging stock and real estate transactions. The blockchain is a "distributed ledger" — that is, a transaction record that is not managed by a central government or bank but run publicly online.