SAN FRANCISCO -- Happy Thanksgiving, Bitcoin.
The value of the so-called cryptocurrency surged above $1,000 as it becomes easier to use as a way to pay and easier to access for investors looking for an alternative to gold.
One Bitcoin was briefly worth $1,073 on Wednesday, up from less than $100 earlier this year, according to Mt. Gox, which hosts and operates a popular Bitcoin trading platform. Later in the day it dropped to $930.
"Bitcoin is just starting to break out into the mainstream," says Eric Tilenius, executive-in-residence at Scale Venture Partners, who has a small percentage of his personal investment portfolio in the digital currency.
The latest to jump on the Bitcoin roller coaster is Gyft, a mobile gift card company backed by Google Ventures. The start-up will give four percentage points back on gift-card purchases made on Thanksgiving Day and Black Friday using Bitcoin. The rewards come in the form of "Gyft points" that can be exchanged for new gift cards from more than 200 retailers, including Gap, Target and Amazon's Zappos.
Bitcoin is a digital currency and payment method that is not regulated by any government. Instead, software controls how many Bitcoins are produced, leaving it less prone to the whims of central banks, some of which have caused inflation in the past by printing too much paper currency.
The Bitcoin software first emerged in 2009 via a person or group using the name Satoshi Nakamoto. Since then, many other developers have jumped on board to support the currency and make it more accessible to consumers and investors.
Bitcoin is already accepted by online organizations like Reddit and WordPress, but it has gained wider acceptance recently.
Billionaire Richard Branson last week said his space start-up Virgin Galactic will accept payment in the virtual currency. The University of Nicosia, a private school in Cyprus, is now accepting Bitcoin for tuition and other school fees. Companies can even reimburse employee expense reports in Bitcoin through start-up Expensify.
Part of the attraction of accepting Bitcoin is that the transactions may have lower fees than those charged by networks including Visa and MasterCard for credit and debit card payments.
"The card networks charge 1% to 3% per transaction, which is a lot of money to many merchants with thin profit margins," says Tyler Moore, an assistant professor in computer science at Southern Methodist University who has researched Bitcoin. "Bitcoin is a new entrant that may disrupt the dominance of the payment networks. That's one reason why people are so excited about it."
But what's really driving Bitcoin's value is rising interest in the digital currency among investors, Moore and Tilenius said.
The rate at which new Bitcoins are produced is controlled by computer code, rather than human beings at central banks, so there's no concern about over-supply. Indeed, over time the software will reduce the number of Bitcoins produced -- or mined in the terminology of the market -- and ultimately stop it altogether.
"Right now, about 25 new Bitcoins are mined every 10 minutes," Moore says. "That will be halved, then halved again and again."
With such fixed supply, and rising demand, the value of Bitcoins should almost by definition climb, he explained.
Beyond pure supply-and-demand economics, Bitcoin is gaining a following among investors who are looking for things that may hold their value in the face of risks such as inflation and currency devaluations.
"Money has two primary purposes: as a medium of exchange, and as a store of value," Tilenius says. "While many people focus on Bitcoin as a new medium of exchange, I believe it's real value lies as a store of wealth. Bitcoin is a new asset class."
Tilenius compared Bitcoin to gold, which surged in value as the Federal Reserve and other central banks loosened monetary policy a lot in the wake of dot-com crash in 2000 and the global financial crisis of 2008.
Gold also benefited as new investment tools, such as exchange-traded funds, made the precious metal easier to hold for more investors. Tilenius says the same thing is happening with Bitcoin now.
Coinbase is a new digital wallet that makes it easier for consumers and merchants to buy, use and accept Bitcoin.
SecondMarket offers a Bitcoin Investment Trust with a $25,000 minimum investment, while BTC China is bringing Bitcoin to the masses in the world's most populous nation.
"It used to be that you had to be quite a geek to go through all the motions to own Bitcoin," Tilenius says. "Now, with the rise of services like these anyone can easily own Bitcoin."
