Bitcoin boom: The online-currency is trading at £2,050 for one bitcoin – up 180% in a year. Incredibly, according to Reuters those who bought $100 (£77) of bitcoin at the 0.003 cent price on May 22, 2010, would now be sitting on more than $73million (£56million).
Created in 2009, bitcoin is a type of virtual currency that is free from government interference and can be shared instantly online.
To ensure the system has value, no more than 21million bitcoin can ever be created, so values can fluctuate wildly depending on supply and demand.
The underlying technology is blockchain, a financial ledger maintained by a network of computers that can track the movement of any asset without the need for a central regulator.
The online cash system soared in popularity at launch with the price of a single coin reaching a previous peak of £916 in November 2013.
But a series of hack attacks and ongoing concerns about fraud and safety dragged the value of the currency back. The cost of one bitcoin was £354 at the start of 2016.
Surge: How the virtual currency has soared in the last few weeks
However, a number of factors – including a spike in demand from China – has seen the cryptocurrency surge in value.
Chinese stocks are down around eight per cent in the last month and gold remains flat – meaning investors are finding returns hard to obtain.
Experts believe this is encouraging the Chinese to head elsewhere, including bitcoin, despite the Government’s efforts to restrict domestic capital leaving the country.
Jeffrey Gundlach, chief executive at DoubleLine Capital tweeted earlier in the week: ‘Bitcoin up 100 per cent in under 2 months.
‘Shanghai down almost 10 percent same timeframe, compared to most global stocks up. Probably not a coincidence!’
Additionally, moves by the Indian government last year to control its paper currency is another driving factor in bitcoin surging in value as traders move to secure the value of their cash, according to experts.
Strong demand for the virtual currency in Japan has also fueled the rise, as retailers in the country can now accept bitcoin as legal currency.
Chris Sedgwick, who works in cyber security, said: ‘People in China and Japan are keen to move their money outside of the capitals controls of their government.
‘A number of years ago you would see Chinese citizens boarding planes and flying to Australia in order to buy property.
‘Nowadays they don’t to go to the bother of strapping money to themselves, rather they just need to transfer money into a bitcoin exchange, swapping their fiat money for the cryptocurrency and remember a password to their wallet.
‘China has devalued the yuan extensively since 2015. The Chinese government has attempted to shut down bitcoin exchanges to stem this flow out of the country however this is akin to whack-a-mole as new ones pop up.
‘Japan is relatively new to the mass purchashing of Bitcoin when compared to China however over the past month there has been increased buying activity from their citizens, both as a “flight to safety” and also as an extremely good investment.
Another big part of bitcoin’s recent surge is the increase in demand for other digital currencies being sold in so-called ‘initial coin offerings’, or ICOs.
Under ICOs, blockchain start-ups sell their tokens directly to the public to raise capital without any regulatory oversight.
Investing in bitcoins – which can be moved like money around the world quickly and anonymously without the need for a central authority – is seen as risky.
It is not the same as putting money into a share, fund or bond, which will tend to be backed by some solid fundamentals and numbers you can scrutinise.
It is a volatile investment which is not backed by any regulation so would not be protected by the Financial Services Compensation Scheme.
Bitcoin is subject to wild swings in value.
For example, in 2013, the currency plunged 29 per cent after a ban in China.
On Tuesday, Fidelity Investments chief executive Abigail Johnson said it will allow its clients to see their holdings of bitcoin and other virtual currencies held on digital asset exchange Coinbase on the company’s website.
The move will make the Boston-based asset manager one of a handful of large financial services firms to have integrated digital currencies into its website.
– Created in 2009, Bitcoin is a type of digital currency that isn’t controlled by a central bank
– The identity of the inventor of the Bitcoin is not known – though he is called Satoshi Nakamoto
– The first person to buy something with a Bitcoin purchased two pizzas for 10,000 coins in 2010
– £14,000 worth of Bitcoins were paid as a ransom in 2016 by a Hollywood hospital targeted by hackers
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