Bitcoin is the first, and the biggest, 'cryptocurrency' – a decentralised tradeable digital asset. The lack of any central authority oversight is one of the attractions.
Cryptocurrencies can be used to send transactions between two parties via the use of private and public keys. These transfers can be done with minimal processing cost, allowing users to avoid the fees charged by traditional financial institutions - as well as the oversight and regulation that entails.
This means it has attracted a range of backers, from libertarian monetarists who enjoy the idea of a currency with no inflation and no central bank, to drug dealers who like the fact that it is hard (but not impossible) to trace a bitcoin transaction back to a physical person.
The Bank of England said earlier this year that it would join forces with other central banks to examine how Britain and other countries might use a central bank digital currency in the mould of bitcoin. The move is partly a response to concern about oversight of private digital currencies, including Facebook's libra.
The exchange rate has been volatile, making it a risky investment. In practice it has been far more important for the dark economy than it has for most legitimate uses, but in recent years mainstream interest in bitcoin has surged, and in December 2020 it hit a record high above $23,000, as a growing number of investors backed it as an alternative to other assets during the Covid crisis.
The value of bitcoin, the world’s best known cryptocurrency, has reached an all-time high of more than $20,000.
The cryptocurrency rose by more than 6% on Wednesday to reach $20,632 (£15,283) against the US dollar, extending a winning streak this year amid growing interest among big investment companies attracted to its potential for quick gains.
The price of bitcoin has surged by more than 400% this year from a low point of around $3,600 in March, when the coronavirus pandemic triggered a deep sell-off in financial markets around the world.
Analysts said that unlike in previous surges, a major price driver appeared to be more institutional investors buying into the cryptocurrency.
Nigel Green, the chief executive of deVere Group, a finance company which operates a bitcoin exchange, said: “They’re being attracted by the good returns that the digital asset class is currently offering but, more importantly, by the huge future potential it offers.
“As some of the world’s biggest institutions – among them multinational payment companies and Wall Street giants – pile ever more into crypto, bringing with them their enormous expertise and capital, this in turn swells consumer interest.”
Bitcoin is the first, and the biggest, 'cryptocurrency' – a decentralised tradeable digital asset. The lack of any central authority oversight is one of the attractions.
Cryptocurrencies can be used to send transactions between two parties via the use of private and public keys. These transfers can be done with minimal processing cost, allowing users to avoid the fees charged by traditional financial institutions - as well as the oversight and regulation that entails.
This means it has attracted a range of backers, from libertarian monetarists who enjoy the idea of a currency with no inflation and no central bank, to drug dealers who like the fact that it is hard (but not impossible) to trace a bitcoin transaction back to a physical person.
The Bank of England said earlier this year that it would join forces with other central banks to examine how Britain and other countries might use a central bank digital currency in the mould of bitcoin. The move is partly a response to concern about oversight of private digital currencies, including Facebook's libra.
The exchange rate has been volatile, making it a risky investment. In practice it has been far more important for the dark economy than it has for most legitimate uses, but in recent years mainstream interest in bitcoin has surged, and in December 2020 it hit a record high above $23,000, as a growing number of investors backed it as an alternative to other assets during the Covid crisis.
The rally in bitcoin comes after a 2017 spike in the digital currency when it rose by more than 900% to come close to $20,000 by mid December, with global financial leaders and economists warning of a price bubble on a par with the Dutch tulip mania of the 17th century. Bitcoin then crashed below $7,000 by early February 2018, but never wiped out to zero as forecast by some analysts at the time.
Investor interest has been growing in bitcoin as a potential way to safeguard against rising inflation. Expectations among City investors for higher rates of inflation have been growing in recent weeks, fuelled by the prospect of a stronger global economic recovery next year thanks to the Covid vaccine and stimulus measures from central banks and governments in advanced economies.
Ruffer, a UK-based investment management company with more than £20bn in assets under management, last month made a bet on bitcoin that is now worth around £550m, in one of the biggest signals of growing demand among traditional investment managers.
A spokesman said the move was to diversify Ruffer’s portfolios into gold and inflation-linked bonds. “[This] acts as a hedge to some of the risks that we see in a fragile monetary system and distorted financial markets.”
Ayush Ansal, the chief investment officer of Crimson Black Capital, a hedge fund, said that public interest in bitcoin would be renewed over Christmas. “After being in a wasteland since the infamous bull run of late 2017, crypto, and bitcoin in particular, are back.
“Bitcoin has been threatening the symbolic $20,000 barrier for some time and finally it has broken through.”
