Bitcoin soars above $17,000, boosting worries and a worldwide frenzy

Bitcoin soared past the $17,000 mark on Thursday, a dizzying run for a digital currency that was worth less than $1,000 at the start of the year and was once largely the preoccupation of technologists or those looking to avoid scrutiny to launder money or buy drugs and weapons online.

The fast rise — it has gone up more than 40 percent this week alone — is creating a buying frenzy among eager speculators around the world and helping push bitcoin into the mainstream. And it is also forcing U.S. regulators to grapple with whether to legitimize a product that operates outside the control of any government or financial institution.

The run-up in price comes as bitcoin enthusiasts prepare to reach a new landmark. On Sunday, a bitcoin product will trade for the first time on a U.S. financial market, making it almost as easy to bet on the virtual currency as oil, corn or the euro.

The move will give it a “veneer” of legitimacy, said Mark Williams, a former Federal Reserve official who teaches finance at Boston University. “From an investors standpoint, that could give it a false sense of protection.”

Many industry experts warn that the United States is not prepared for bitcoin’s entry into the financial markets. As bitcoin prices were setting records, hackers this week reportedly made off with $70 million in the digital currency after targeting NiceHash, a cryptocurrency platform. The Futures Industry Association, which includes Goldman Sachs and JPMorgan Chase, has complained that the process for investing in bitcoin is moving too fast. “We remain apprehensive with the lack of transparency and regulation” of bitcoin, the group said in a letter earlier this week.

Such warnings have not stopped the craze surrounding the currency as the sharp rise in value creates ever more demand. In South Korea, people are pouring their life savings into bitcoin and other digital currencies. In Venezuela, after observing the rise of bitcoin, the government announced it would launch its own virtual currency called the “Petro” to get around U.S. sanctions.

Bitcoin was first created in 2009 under mysterious circumstances — little is known about who originally came up with the idea. It launched as a digital currency — without physical coins such as dimes or nickels — and was accompanied by an online payment network similar to PayPal. But unlike PayPal, the bitcoin transaction system is not owned by anyone.

Its decentralized, democratic nature gave it special appeal. Only buyers and sellers — rather than the central bank of a government — can change its value. Transactions between accounts are recorded on online ledgers, and prices are posted publicly on exchanges such as Coinbase’s GDAX, one of the 24-hour indexes that tracks the value of bitcoin. GDAX on Thursday reported bitcoin’s price, which can fluctuate sharply, crossed the $17,000 threshold.

Cryptocurrencies initially won fans among technology enthusiasts and people trying to avoid traditional currency markets. That includes people seeking to buy drugs on off-the-grid online marketplaces without being detected by the police. When federal authorities shut down one such marketplace called Silk Road in 2014, they seized 26,000 bitcoin worth about $3.6 million.

“The people who started to use bitcoin years ago were those that couldn’t use anything else,” said Nicolas Christin, a security researcher at Carnegie Mellon University.

Confidence in the virtual currency has been repeatedly shaken by spectacular failures, including the 2014 implosion of the largest bitcoin exchange of its time, Mt. Gox, which went bankrupt after $400 million in bitcoin was allegedly stolen. Hackers remain a threat, and sometimes bitcoin just disappear after their owners forget or lose the passwords for their accounts…

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