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Bitcoin is back

Fully Charged

Hello, everyone. I'm Vildana Hajric, one of Bloomberg's cross-asset reporters. I'm here to tell you what you may have already heard if you've spent any time online in the last few weeks: Bitcoin is back.

The world's oldest and largest digital currency—a favorite of the Twitterati, living room day-traders and, increasingly, Wall Street—has almost tripled in value this year. It hit a new record on Monday for the first time since 2017, rising to $19,857, and climbed even higher on Tuesday. 

After three years of wild ups and downs (but mostly downs), why is Bitcoin rallying now?

One answer is that cryptocurrencies are finally creeping further into the mainstream. An October decision by PayPal Holdings Inc. to allow customers to use cryptocurrencies on its platform supercharged Bitcoin's ascent. Traditional financial institutions have also taken a much greater interest in electronic money. The list of Wall Street firms dabbling in crypto has grown to include Guggenheim Partners LLC and JPMorgan Chase & Co., among others.

"It's just a litany of institutional investors that are changing their mind or realizing that now's the time," Mike Novogratz, founder of Galaxy Digital, said on CNBC this week. "You're seeing the evolution of this industry and it's speeding up in an accelerated fashion."

It's not just belief in cryptocurrencies driving prices up. Other risky assets, including stocks, have also recently reached record highs. With U.S. interest rates are pinned near zero, there just aren't that many places to get big returns. That might be part of the calculus behind bets placed by investors like Paul Tudor Jones or Stanley Druckenmiller. Why not take a flier?

A few investors also believe in using Bitcoin as a hedge against inflation. Galaxy's Novogratz has said that in a world awash in cash from massive coronavirus stimulus programs, digital assets will prove superior at retaining value. However, there have been scant signs of any runaway inflation so far.

Looking ahead, don't expect a smooth trajectory for Bitcoin. One thing every crypto investor knows by this point: This stuff is really volatile. First, there was the boom and bust cycle of 2013. Then in 2017, during the last run toward $20,000, Bitcoin copycats abounded and thousands of new coins were issued. (A Long Island iced tea company that rebranded as "Long Blockchain Corp." saw its stock surge.) The price of Bitcoin ended up falling 70% the following year. 

Even this week, overnight into Tuesday, Bitcoin sank more than $1,000 before climbing back up. And a week ago, it came within $7 of the old record, then plunged $3,000 in two days.

Given the rally, it's hard to scoff at the gains Bitcoin has made. Despite the volatility, if you bought Bitcoin in 2010 and held onto it throughout the decade, you'd be better off than with almost any other asset.

Now, crypto evangelists are promoting new sky-high predictions, ranging from the somewhat pedestrian $25,000 to more than $300,000 by the end of next year. The latter, a projection from a strategist at Citigroup Inc., would imply Bitcoin gains of about 1,500% from where it's currently trading.

We're clearly still in the euphoric stage of the cycle in this latest run, as mainstream investors pile in, along with newcomers. For example, Maisie Williams, of "Game of Thrones" fame, recently bought Bitcoin even though a snap poll she held on Twitter said she shouldn't.

'"Thank you for the advice," she tweeted. "I bought some anyway." Vildana Hajric

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