SAN FRANCISCO – Bitcoin reached a new record above $ 47,000 on Monday, shooting more than 45% since the beginning of the year.
Other digital currencies – with names like Terra and Solana – have also increased dramatically in value.
Even Dogecoin, a cryptocurrency that started out as a joke with a dog Shiba Inu perpetually surprised as its symbol, rose nearly 1,000 percent in the past week to set a record.
The rally is a time of euphoria for the thousands of different versions of digital money, which years ago were dismissed as little more than online Beanie Babies caught in a speculative bubble. Although cryptocurrencies often rise and fall together, the most recent increase stands out for its magnitude – for the first time, the value of all cryptocurrencies has skyrocketed to over $ 1 trillion in the last month – as well as the number of people using it. digital tokens for practical purposes and the main actors involved.
On Monday, the ostensible reason for the rally was an announcement by Tesla, the electric car company run by Elon Musk, the richest person in the world. Tesla said it bought $ 1.5 billion in Bitcoin and will start accepting Bitcoin payments, triggering an interest frenzy.
But the underlying momentum for a peak has been growing slowly for about a year. During that time, PayPal joined other consumer applications that allow users to buy, maintain and sell cryptocurrencies. Some of the world’s largest hedge fund operators – such as Paul Tudor Jones and Stanley Druckenmiller – have also put money into the new market, a sign that they increasingly see cryptocurrencies as an asset like gold.
“It’s just a radical shift in sentiment,” said Meltem Demirors, director of strategy at CoinShares, manager of cryptocurrency assets. “We went from being scorned and ridiculed to the richest man in the world talking about it.”
The surge follows a recent frenzy over the actions of video game retailer GameStop, which was also driven by social media memes and teasing musk tweets. Joshua Gans, a professor who studies innovation at the University of Toronto business school, said the two launches present a new generation of investors who had a lot of time available during the pandemic and few attractive options for spending their money. As a result, they became more interested in investments that are being discussed online, he said.
Buying and trading stocks and cryptocurrencies has also become simpler and more accessible, said Gans. Square and the trading app Robinhood have introduced cryptocurrency and stock trading in recent years. Last year, PayPal also added cryptocurrencies to its application, expanding the audience.
“People didn’t have a surplus of cash before and time to ‘learn’ about trading,” said Gans. Now, stocks and cryptocurrencies are “easier to ‘buy’ than ever.”
Cryptocurrencies began to appear in 2009, after someone known as Satoshi Nakamoto – whose real identity has never been revealed – released the rules and software for Bitcoin. The virtual currency, which has no physical support, can be sent electronically from one user to another, anywhere in the world. Bitcoin was run by a decentralized computer network that tracks all transactions, so it could not be controlled by a government or company.
Bitcoin was initially described as a way to pay for things online. But the need for transactions in the decentralized system slowed payments.
Over time, investors became more interested in Bitcoin because it was not controlled by any government or company. The software that sets the rules for Bitcoin also allows only 21 million Bitcoins to be created, so it was a scarce resource.
These qualities created periods of high and low for Bitcoin and other digital currencies. In 2017, after a rapid rise, Bitcoin’s price plummeted. However, since the coronavirus pandemic, a new set of powerful investors and companies has entered the market.
They included hedge fund operators like Tudor Jones and Druckenmiller, as well as Ray Dalio, the founder of Bridgewater. Although Dalio expressed skepticism about Bitcoin last November, he published an essay last month, after further study describing the cryptocurrency as “a hellish invention”. He added that he was considering putting money into Bitcoin.
Other proponents of Bitcoin include Jack Dorsey, chief executive of Twitter and Square. Square invested $ 50 million in Bitcoin last year. And Dorsey, whose Twitter profile is #bitcoin, has tweeted frequently about the qualities of virtual currencies.
Last year, Michael Saylor, chief executive of software company Microstrategies, also put money on his company’s Bitcoin balance sheet. He has since seen it triple in value to about $ 3 billion, according to Bitcointreasuries.org. Saylor said he made the change because he believes the value of traditional currencies will drop over time, making the Bitcoin scarcity more valuable.
“For anything that someone has invested as a store of value, it starts to look like it is better to move to Bitcoin,” said Saylor in November.
Mr. Musk talked to Mr. Saylor on twitter the past few months about imitating that strategy. Then, in a filing on Monday, Tesla said it bought $ 1.5 billion in Bitcoin to “maximize the return on our money”.
Musk fed the fever around cryptocurrencies through other tweets. Last month, Musk followed Dorsey by changing his Twitter profile to #bitcoin. He removed that description a few days ago, but posted other encouraging – and sometimes cryptic – messages about virtual currencies.
He also talked about Dogecoin, a coin created in 2012 as a playful experience to allow people to experience the technology. Last month, Musk stopped posting cryptic Dogecoin jokes (“One word: Doge”) for semi-serious arguments why it can be taken seriously (“Doge appears to be inflationary, but not significantly”).
Other celebrities then embraced the Dogecoin cause with their own viral tweets. On Saturday, rapper Snoop Dogg responded to a tweet from Musk with a photo of himself as Snoop Doge.
In addition to people chasing the latest online joke, more people are using cryptocurrencies for more serious purposes. Ethereum, the second most valuable digital token, has generated applications that allow new types of financial transactions. Unlike Bitcoin, which only supports the storage and movement of money, Ethereum makes it possible to use a computer network for more complicated types of computing and transactions.
A popular application running on Ethereum, called Aave, allows people to borrow and borrow cryptocurrencies, with interest payments moved directly between users, with no financial company involved.
As of Monday, the system had more than $ 5 million in outstanding loans, according to the DefiPulse website. Ethereum also hit a high on Monday of $ 1,776, according to Coinbase, an increase of 134% since the beginning of the year.
“In 2017, people simply bought everything that was for sale,” said Demirors. “Now people know what they are buying and are asking smart questions. This is very different. “
Michael J. de la Merced and Ephrat Livni contributed reports.