SILVER SPRING, Md. — The seemingly unstoppable rise of Bitcoin continued Tuesday with the cost of a single unit of the digital currency rising above $50,000 for the first time.
The price of Bitcoin has risen almost 200% in the last three months and its volatility was on display Tuesday. After rising above $50,600, it fell back to $48,674 at 2:15 p.m. ET. At that price, with about 18.6 million Bitcoins in circulation, Bitcoin has a market value of nearly $907 billion.
Bitcoin is rallying as more companies signal the digital currency could eventually gain widespread acceptance as a means of payment. The vast majority of those who have acquired Bitcoin have treated it as a commodity, like gold, with few places accepting it in exchange for goods or services.
Companies have been leery because of Bitcoin’s volatility and its use by parties who want to avoid the traditional banking system for a myriad of reasons.
Last week, however, the electric car company Tesla sent a tremor through the digital currency markets, saying that it was buying $1.5 billion in Bitcoin as part of a new investment strategy, and that it would soon be accepting Bitcoin as payment for its cars.
BNY Mellon, the oldest bank in the U.S., followed a day later, saying it would include digital currencies in the services it provides to clients. Mastercard said it would start supporting “select crypto currencies” on its network. And Blue Ridge Bank of Charlottesville, Virginia, said it would allow cardholders to purchase and redeem Bitcoin at 19 of its ATMs.
As its price keeps rising, here’s a brief look at the bitcoin frenzy:
How Bitcoins work
Bitcoin is a digital currency that is not tied to a bank or government and allows users to spend money anonymously. The coins are created by users who “mine” them by lending computing power to verify other users’ transactions. They receive bitcoins in exchange. The coins also can be bought and sold on exchanges with U.S. dollars and other currencies.
Can Bitcoin buy stuff?
The digital currency has become popular enough that more than 300,000 transactions typically occur in an average day, according to Bitcoin wallet site blockchain.info. Still, its popularity is low compared with cash and credit cards.
Besides Tesla, few companies have said they’ll accept Bitcoin as payment. Overstock.com appears to accept Bitcoin for most listings on its website, including cameras, vacuums and clothes. PayPal allows its accountholders to buy, sell and hold four cryptocurrencies, including Bitcoin — but you can’t use it to pay people, at least not yet.
Lee Reiners, who teaches fintech and cryptocurrency courses at Duke University School of Law, believes many companies will remain hesitant to accept Bitcoin as payment for products and services because of the volatile price.
“If you were a merchant, why would you accept payment in an asset that could be worth 20% less a day after you receive it?,” Reiners said.
But Richard Lyons, a finance professor at the University of California at Berkeley, predicts Bitcoin and other digital currencies “will become transactional currencies increasingly over the next five years. It’s not going to happen overnight,” he said.