Bitcoin prices skyrocketed nearly 76% in November through Friday, and they’re up more than 20 times this year, breaking through records at a pace that has many market participants bracing for a correction. “If you look at the history of bitcoin trading, it’s a series of bubbles, corrections and setting of a new floor,” said Barry Silbert, founder and chief investment officer of SecondMarket, which launched a bitcoin trust in late September. In response to whether bitcoin is in bubble territory, he said: “Looking at a price chart, it’s hard to say that we’re not.” Several factors have come together. Demand for bitcoin has surged in China, making the Chinese bitcoin exchange BTC China the most heavily traded in terms of 30-day volume. The Chinese yuan now makes up about 50% of trading on exchanges, up from single digits earlier in 2013, said Greg Schvey, head of research at the Genesis Block, a bitcoin research firm.
The virtual currency received a credibility boost in October after federal authorities shut down the online drug market Silk Road, which exclusively accepted bitcoin. “You saw a lot of high net worth individuals and institutions start to buy after that,” said Jaron Lukasiewicz, chief executive of Coinsetter. And venture-capital firms have raised the virtual currency’s profile by pouring money into bitcoin companies, including $9 million in Series A funding for Circle, a company that aims to make bitcoin payments easier. Interest in SecondMarket’s Bitcoin Investment Trust could also be driving prices higher. The trust has about $15 million in assets under management, hitting its year-end target in just four weeks, Silbert said. At its launch, the trust had established buying relationships with more than 100 players in the bitcoin space in order to meet demand.
