Bitcoin Forum

Bitcoin Price Hits a New Record
Virtual Currency Vaults Above $400 on Mt. Gox Exchange
 By
Robin Sidel And Saabira Chaudhuri
Updated Nov. 13, 2013 3:14 p.m. ET

The price of a bitcoin vaulted to a record Wednesday, fueled by growing views that the virtual currency can have a credible future as an alternative to traditional methods of payment.

The momentum is coming from around the world, as amateur investors, venture capitalists and technology enthusiasts pump money into businesses that are trying to figure out how to swap and use bitcoin to buy goods and services.

"Our clients have seen an uptick in interest among a wider circle than just the types of people who were early adopters in the U.S.," said Adam Shapiro, a director at Promontory Financial Group LLC, a financial-services consulting firm that is advising clients on bitcoin ventures.

Bitcoin is a four-year-old virtual currency that isn't backed by a central bank and can be traded on a number of exchanges or swapped privately. A growing number of merchants also accept bitcoin as payment because the transaction costs associated with the currency are generally lower than those with credit or debit cards.

One bitcoin was worth $425 on the Toyko-based Mt. Gox exchange Wednesday afternoon, nearly doubling since the start of November and up from roughly $13 at the beginning of the year.

Although Mt. Gox is known as the first big exchange to trade bitcoin, the currency's enthusiasts are turning to competing exchanges that are starting to attract more trading. That is creating some confusion among users, as well as an arbitrage opportunity among the exchanges.

One of them is Slovenia-based Bitstamp, where one bitcoin was trading Wednesday at roughly $389, up more than 9% from Tuesday.

Bitcoin's price has been highly volatile. The virtual currency jumped to a record of about $265 in April as interest in the currency grew. But in early October, in the wake of the bust of an online drug-trafficking website that used the currency, it plunged to around $90.

People who follow the industry warn that trading in bitcoin is thin on many exchanges, which can lead to big price swings.

The jump in bitcoin prices is also being attributed to surging demand from China, where a local exchange is drawing trading from around the world. A unit of Chinese Internet giant  Baidu Inc.  BIDU +1.70%     started accepting bitcoin for payment a few weeks ago.

Investors have poured $18 million into a bitcoin-dedicated investment vehicle since September, surpassing its goal of raising $10 million by the end of the year. BitCoin Investment Trust is a unit of Second Market, a New York-based business known for trading stocks before their initial public offerings.

"There is a lot of demand, and it's coming from high-net-worth individuals and institutions," said Jaron Lukasiewicz, whose fledgling New York-based bitcoin exchange Coinsetter opened for business Wednesday.

Bitcoin prices also are being buoyed by a crackdown on illegal activities that have been tied to the virtual currency and increased regulatory scrutiny. Such measures help make bitcoin more legitimate, enthusiasts say.

Federal agents last month closed an online mart where customers allegedly could use bitcoin to buy anything from heroin to forged passports, according to a criminal complaint. And over the summer, the Securities and Exchange Commission charged a Texas man with raising more than $4.5 million worth of bitcoin from investors who were "falsely" promised a weekly interest rate of 7%.

A Senate subcommittee is scheduled to hold a hearing Monday on virtual currencies. That comes after a unit of the Treasury Department earlier this year issued guidelines that said virtual-currency exchanges are subject to the same anti-money-laundering requirements as are traditional money-transmission businesses, such as Western Union Co.

"Fewer people are asking if this is all a Ponzi scheme," says Mr. Lukasiewicz, the Coinsetter chief executive.

Despite its rising price, fans of the virtual currency are facing significant challenges. CoinLab Inc., one of the best-known names in the industry, suffered a setback last week when one of its units filed for Chapter 11 protection in U.S. Bankruptcy Court in Seattle.

What's more, the competition to generate bitcoins in a process called mining is getting increasingly complicated and expensive, as companies and technology fans race to build the powerful computers required for bitcoin production. Some customers are complaining that producers of such equipment are running behind on their ability to fill orders.

Bitcoin "has clearly withstood many challenges, and there are probably more to come. The end of the journey actually has little to do with how much bitcoin is worth, but what it might be good for," said Nicholas Colas, a market strategist at New York-based global brokerage company ConvergEx Group, in a report issued earlier this month.