Bitcoin Tops $1,000 as Virtual Money Gains Popularity

Photograph by Tomohiro Ohsumi/Bloomberg Close

Photograph by Tomohiro Ohsumi/Bloomberg

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Photograph by Tomohiro Ohsumi/Bloomberg

The price of Bitcoin surpassed $1,000 on the Mt. Gox online exchange, fueled by speculators snapping up the virtual currency as it gains wider acceptance.

Bitcoins, which exist as software and aren’t regulated by any country or banking authority, surged to a record $1,073 today, up more than 80-fold from a year earlier. The currency has rallied on growing interest from investors in China and the U.S., while merchants are starting to accept Bitcoins for everything from Gummi bears to tuition fees.

The virtual currency gained credibility this month after law enforcement and securities agencies said in U.S. Senate hearings that Bitcoin could be a legitimate means of exchange. The rally had gathered steam last month after regulators shut down the Silk Road Hidden Website, where people could obtain guns, drugs and other illicit goods using Bitcoins. That generated optimism the digital money would become more widely used for legal purposes.

“Milestones do tend to provide some validation, even though they are entirely arbitrary,” Nicholas Colas, chief market strategist at ConvergEx Group, wrote in an e-mail. “$1,000 for a Bitcoin would draw attention and certainly gives people positive on the currency another reason to laugh at the naysayers.”

Is Bitcoin Real Money?

Bitcoins were trading at $1,003 apiece today on Mt. Gox, one of the exchanges where the digital money can be traded for other currencies. On Bitstamp, the most active dollar-based marketplace among online exchanges, they were at $949.90. Bitcoins were trading at $12 to $13 a year earlier, and have quintupled this month.

Bitcoin Origins

Introduced in 2008 by a programmer or group of programmers going under the name of Satoshi Nakamoto, Bitcoins exist as software, which contain the rules governing their supply. New Bitcoins can only be created by solving complex problems embedded in the currency, keeping total growth limited. There are more than 12 million Bitcoins in circulation, according to Bitcoincharts, a website that tracks activity across various exchanges.

Bitcoin is being used to pay for everything from Gummi bears to smartphones on the Internet. The virtual curency can also be traded without being tracked, potentially reducing banking-transaction fees and making it an attractive tender for those seeking to buy and sell via the Web or in stores.

When Silk Road was shut down, the virtual currency lost a third of its value within days as holders sold, predicting a crackdown. Instead, the willingness of authorities to stamp out illegitimate use has come to be seen as an endorsement for Bitcoins, making users and investors more comfortable taking risks with digital money.

Bitcoin also gained further legitimacy and attention when a subsidiary of Baidu Inc. (BIDU), China’s top search engine, started accepting Bitcoins on Oct. 15. Chinese Bitcoin activity has exploded, with the number of yuan-based trades jumping 30-fold in the past two months and making BTC China the top online-exchange by volume.

To contact the reporter on this story: Olga Kharif in Portland at okharif@bloomberg.net

To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net

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