Crypto-Currencies: New Money
Bitcoin, its imitators and the risk of a crypto-bubble.
It is hard to predict when bubbles will pop, in particular when they are nested within each other.
It helps to keep this image in mind when considering one of the biggest surges in asset values of recent years: the market value of all the world's crypto-currencies has trebled since the beginning of the year, and is now worth more than $60bn.
Bitcoin is the best known of these currencies, especially after hackers this month instructed victims to pay ransoms in the anonymous digital cash in order to get their computer files decrypted.
Not that many bitcoins exist: there are about 16.3m of them, with only 1,800 new ones minted every day.
But growing demand has pushed bitcoin's price to a record recent high of about $1,830, up from $450 a year ago.
Earlier this year some of the biggest exchanges, such as Bitfinex, experienced problems with their correspondent banks and were unable to pay out real-world currencies to account-holders.
To get their money out, they had to buy bitcoin and exchange them elsewhere.
Yet the market is becoming more mature: institutional investors, from family offices to hedge funds, have become more comfortable with crypto-currencies, says Mike Komaransky of Cumberland Mining, which arranges over-the-counter trades.
Other factors driving demand include fluctuations of China's yuan, the French elections and, in a small way, the ransomware attack (when The Economist went to press, only about $80,000 had been sent to the bitcoin accounts held by the hackers).
Counter-intuitively, bitcoin's biggest weakness—the system's limited capacity—has also increased demand for crypto-currencies.
Its developers have argued for years about how to expand the system, which can only handle seven transactions per second, compared with thousands on conventional payment services.