Bitcoin is nearing its highest-ever price – passing $19,000 (£14,241) for the first time since its calamitous collapse in 2018.
In recent months, Bitcoin has been boosted by strong levels of demand from institutional investors, with PayPal announcing that it would allow its users to buy and sell the cryptocurrency.
Other cryptocurrencies have also grown over the past year, such as Ether and XRP.
Some hedge fund managers have suggested that Bitcoin could hit $100,000 (£75,000) in 2021. Brian Estes, a chief investment manager at Off the Chain Capital, said: “I have seen bitcoin go up 10X, 20X, 30X in a year. So going up 5X is not a big deal.”
Others have warned such predictions are outlandish. Kevin Muir, a trader based in Canada, said: “Any hedge fund model on Bitcoin is rubbish. You can’t model a mania. Is it plausible? For sure. It’s a mania. But does anyone actually have a clue? Not a chance.”
Bank of England Governor Andrew Bailey recently said he was “very nervous” about people using Bitcoin to make payments – and has previously warned that people who invest in the cryptocurrency should be prepared to “lose all their money”.
The highly volatile digital asset set a record high of $20,089 (£15,062) in December 2017. But in the year that followed, Bitcoin’s value suffered an enormous drop – plummeting by more than 80% to lows of $3,200 (£2,400).
At the time, a Sky News investigation found that the fall led to businesses collapsing, marriages failing, and some investors defaulting on their mortgages.
Bitcoin was billed as a peer-to-peer electronic cash system when the cryptocurrency was unveiled to the world in a white paper published in 2008 – not long after the global financial crash.
The document was written by a person or group using the pseudonym “Satoshi Nakamoto”, but their identity remains unknown.
Bitcoin has a maximum supply of 21 million coins that will gradually be released between now and 2140, and fractions of them can be traded.
Some crypto enthusiasts have suggested that this capped supply has contributed to recent price rises as central banks around the world turn to quantitative easing in light of the coronavirus pandemic, which effectively involves printing new money.
The fact that Bitcoin is traded on a peer-to-peer basis at a value determined by the market rather than by a central bank has captured the imagination of economic libertarians, as well as criminals seeking to evade law enforcement.
Bitcoin’s price has grown by more than 360% since March, when the cryptocurrency’s value suddenly crashed.