The digital currency Bitcoin hit $11,000 on Wednesday having risen past the milestone of $10,000 a unit earlier on major exchanges. This immediately raised questions of whether its dramatic climb from around $1,000 at the start of the year represented a bubble or evidence that mainstream investors were moving in to the cryptocurrency.
The rise in Bitcoin prompted the president of the Federal Reserve Bank of New York, William Dudley, to warn that ordinary investors needed to treat cryptocurrencies with caution while at the same time saying the U.S. central bank was studying the implications of a digital currency.
“At this point it’s really premature to be talking about the Federal Reserve offering digital currencies,” he told students and professors at Rutgers University, according to Reuters. “But it is something we are starting to think about: what would it mean to have a digital currency, what would it mean to offer it, do we actually need it.”
Proponents of Bitcoin, however, see the spike in price as a signal of its adoption by mainstream investors now moving into the digital currency. This pushed its price sharply higher as interest in it expands beyond the original enthusiasts and cryptocurrency investors.
“The significance of Bitcoin reaching $10K per coin can be summed up as validation on a global scale for the entire [Bitcoin] community’s work and the principles surrounding cryptocurrencies,” said Patrick McCorry, a cryptocurrency researcher at University College London, who is also soon to be the first PhD graduate in the field.
“Over the past two-to-three years the main driving force behind the value of Bitcoin (and other cryptocurrencies) can mostly be accredited to their acceptance and legitimacy in society, and how these currencies can support innovations that were previously unimaginable,” he told WikiTribune.
Bitcoin enthusiast, Max Keiser, who has an eponymous financial show on Kremlin-backed television service RT (formerly Russia Today) and has talked about investing in the cryptocurrency, told WikiTribune that Bitcoin had come of age as a legitimate currency: “The reason why money is flowing into Bitcoin is that there’s a high degree of confidence now that it represents a safe, secure store of value.”
Created in 2009, Bitcoin is a digital currency which runs on a technology called blockchain – a decentralised ledger that allows for anonymous and secure peer-to-peer transactions. Instead of being printed by governments or traditional banks like normal cash, bitcoins are created through a complex process called ‘mining‘, which are monitored by a network of computers across the world.
Though the price of Bitcoin has been fluctuating since its inception, 2017 has seen unprecedented growth. Bitcoin started the year at around $1000 and has risen tenfold to $10,000.
Critics of Bitcoin and the cryptocurrency phenomenon such as Credit Suisse chief executive officer Tidjane Thiam have said the rise is built on speculation which risks turning into a bubble. JPMorgan CEO Jamie Dimon labelled it a ‘fraud’ and a bubble.
Recently, Bank of England Deputy Governor Jon Cunliffe said that Bitcoin is not big enough to threaten world economy. “This is not a currency in the accepted sense. There’s no central bank that stands behind it. For me it’s much more like a commodity,” he told BBC Radio 5 Live.