Why Bitcoin prices are at a five-month high

October 15, 2013

The price of Bitcoins rose to $140 on Tuesday, the highest level the virtual currency has reached since May 1:


Bitcoin price on the Bitstamp exchange. (Bitcoincharts.com)

In the first four months of 2013, Bitcoin saw a massive rally, rising from $13 at the start of the year to $266 on April 10. The price then crashed to $50 later in April, rose to $170, and fell below $65 in July.

But in the last three months, the price of Bitcoins has risen steadily. It hit $140 earlier today.

The currency's value has risen despite a spate of negative headlines. Earlier this month the feds arrested the alleged mastermind of the Bitcoin-based narcotics marketplace Silk Road. In July, federal regulators shuttered an alleged Bitcoin Ponzi scheme. And the leading Bitcoin-based exchange, the Japan-based Mt. Gox, has had a series of problems, including a U.S. government crackdown and an acrimonious legal dispute with a former business partner.

But at the same time, entrepreneurs have been quietly building new businesses on top of the virtual currency. Few if any of those businesses have produced big profits yet. But the fact that so many entrepreneurs and investors are pouring resources into the system — despite its highly publicized problems — suggests a high degree of confidence that those problems will be worked out in the long run, and Bitcoin will become an important part of the world economy.

The most positive development for Bitcoin in recent months is what hasn't happened: the federal government hasn't tried to shut the system down. One of the biggest threats to Bitcoin's long-term success has always been that the government would decide that Bitcoin is a giant money-laundering machine. Instead, federal officials have done just the opposite. When they have taken action against specific Bitcoin-based businesses, they've repeatedly emphasized that they have no quarrel with the underlying Bitcoin technology.

Indeed, in a recent conversation with The Washington Post, the Bitcoin Foundation's Patrick Murck argued that the shutdown of Silk Road was a positive sign for Bitcoin, because it helps remove the stigma associated with Silk Road's illicit activities. That, he argued, will allow the Bitcoin community to focus on lawful applications of the disruptive payment technology. While Bitcoin's killer app hasn't yet emerged, the market is still optimistic that it will.

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Andrea Peterson · October 15, 2013

business/technology

the-switch