This week, the value of a single bitcoin officially cleared $10,000, a new high point that’s over an order of magnitude greater than its price at the start of this year. Bitcoin has defied market expectations before, but in 2017, it didn’t just become more valuable. Bitcoin and other cryptocurrencies have become an acknowledged part of the financial system — albeit a nebulous one.
Bitcoin traded at around $960 at the beginning of the year, and it’s risen steadily since then, with a steep jump in the past two months. There are multiple, complementary explanations for this, but this latest boom was sparked partly by the CME Group, a futures marketplace that announced its intent to start listing bitcoin by the end of the year. It’s a stamp of approval that could help cement bitcoins’ position at other major financial institutions, many of which are already handling bitcoin-related trading in some capacity. Even JPMorgan Chase, whose CEO Jamie Dimon has said he would fire anyone who traded bitcoin, is reportedly considering a plan to let its clients access CME’s futures.
Bitcoin isn’t replacing cash, but it’s gotten a big stamp of investor approval
Not everyone believes that bitcoin is ready to enter the futures market. Themis Trading principal Joe Saluzzi warned that the currency is dangerously unregulated: “It reminds me of the financial crisis all over again,” he told CNBC. And bitcoin is so volatile that spending it doesn’t make sense. Nobody knows how valuable a single bitcoin might BECOME — while Thomas Glucksmann of currency exchange Gatecoin said $10,000 was still “cheap in my opinion,” bitcoin has also suffered extended catastrophic crashes, including a long slump after passing $1,000 in 2013. As an example of just how surreal bitcoin fluctuations can be, Gizmodo writer Kashmir Hill tweeted about buying a sushi dinner in 2013 for the equivalent of $99,000 today.
There are still places where bitcoin payments make sense, although they’re sometimes unsavory: far-right groups have used them after being dropped by payment processors, for instance. And the underlying blockchain technology has myriad uses that aren’t cryptocurrency-focused — from quickly processing international money transfers to tracking legal marijuana.
But people have also found uses for cryptocurrency that go beyond replacing cash. The best-known example of 2017 might be initial coin offerings or ICOs, in which companies sell digital tokens based on cryptocurrencies like Ethereum. ICOs range from serious fundraising efforts to absurd but startlingly successful jokes, and some have earned endorsements from the likes of Paris Hilton and Ghostface Killah of Wu-Tang Clan. And unlike Dogecoin or other earlier novelty currencies, they’ve attracted serious regulatory attention.
Some countries have outright banned ICOs — China barred the offerings as a form of “illegal public financing,” and South Korea announced “stern penalties” for running them. But other countries have attempted to clarify how existing rules apply to them. The US Securities and Exchange Commission ruled that some ICOs fell under securities law, setting them apart from general crowdfunding efforts. Japanese regulators also outlined how ICOs may fall under existing financial rules. In the US, the SEC has even issued guidance for how celebrities can hawk them.
Cryptocurrencies’ overall legal status is still complicated, but several countries have made major policy decisions around them in 2017. Some of these are negative: China shut down currency exchanges earlier this year, although traders have moved to other platforms, and the SEC rejected a high-profile application for a bitcoin stock fund. Many other countries have given more ambiguous signals. Russian president Vladimir Putin ordered regulators to develop a wide-ranging set of rules for miners and traders, even as officials have signaled a crackdown. India’s government launched a committee earlier this year to study digital currency regulation, and the Supreme Court recently urged it to speed up its work.
People have been prosecuted for cryptocurrency-related crimes like Ponzi schemes in past years, and governments have issued guidance about bitcoin. Some of these new decisions just raise new questions: the SEC, for instance, didn’t address how it would punish a decentralized network for violating securities rules. Likewise, getting attention from investors and regulators doesn’t tell us whether bitcoin will succeed in the long run, or whether cryptocurrencies will play a major role in most people’s lives. But even if cryptocurrencies aren’t directly competing with their traditional counterparts, the past year shows how serious they’ve become to both regulators and investors.