This was the year that it became tough to ignore bitcoin. The digital form of currency started 2017 trading at about $1,000 per “coin” and as of Friday was just shy of $13,000.
Did anything in your portfolio jump 1,200 percent in 2017?
And yet . . . listening to people talk about bitcoin can make your brain start to throb. The language around it was invented by techies: Bitcoin relies on the blockchain to keep track of transactions. It is “mined” not by helmet-wearing toilers but by powerful computers performing cryptographic calculations. Your private key is a secret code that shows that you have ownership of a specific bitcoin and can spend it.
Yes, there’s a lot of jargon, but if you want to simplify, bitcoin is a relatively new system for storing value that isn’t controlled by any government and can move fluidly around the world without requiring a cashier’s check or wire transfer. (It was invented in 2009 by an anonymous person or collective.)
Ty Danco, an angel investor who backs startups, dubs it a “more efficient, provable, unstoppable form of value and property. It is far more useful than gold.” (Also, no one is sending information about your bitcoin holdings or gains to the Internal Revenue Service.)
Some strange things have been happening amid this year’s spike in bitcoin prices.
John Robb, an author and blogger in Acton, says that when bitcoin was worth just $1, a few readers sent him tips that totaled about 2.5 bitcoins. Those tips are today worth about $40,000. About three years back, John Pepper, the founder of the burrito chain Boloco, tipped a kiteboarding instructor $100 in bitcoin for two days of lessons.
Recently, he says, “I reached out to her to make sure she had not forgotten about it and she had. It’s worth about $5,000 now. I wish I had done more of that.”
Jed Breed, a Cambridge entrepreneur, says he used bitcoin to buy a few sushi dinners at Thelonious Monkfish, a Central Square restaurant. Today, each dinner’s tab would be worth about $1,000 — if the restaurateur held onto the bitcoin.
Todd Dagres, a Boston venture capitalist whose firm has backed companies like Twitter and Wayfair, says he was at a dinner this month with a friend whose spouse has accumulated about $800,000 of bitcoin and similar crypto currencies, “and is freaking out. To sell or not to sell, that is the question. It’s causing lots of stress.”
Dagres himself has “dabbled” in bitcoin and other crypto currencies (which have names like Litecoin and Ethereum), mainly to understand how they work for the purposes of investing in startups that operate in the crypto currency sector. He describes his own investing experience as “wild. You keep saying it can’t go higher, so you don’t buy more — but you don’t sell, either.”
But another local venture capitalist, Semyon Dukach of One Way Ventures, says he has sold all his bitcoin holdings because he considers the currency as overvalued relative to other kinds of crypto currency “and probably in general.” He adds, “The crash is now very near, as indicated by the number of Uber drivers talking about buying it. I predict it will be back under $2,000 by summer.”
And Grant Deken, chief executive of the Cambridge marketing startup Grapevine, says he cashed out of his bitcoin holdings recently: “Nobody ever went broke taking a profit,” he explains.
The reason for bitcoin’s bottle-rocket year in 2017, explains Rob May, a Boston entrepreneur who runs the artificial intelligence company Talla, is that “money in places like China and Venezuela is looking to get out, and bitcoin is the easiest way.” Plus, “you have a bunch of people like me who own bitcoin and don’t intend to sell, so the demand far outstrips the supply.”
“In a squirrelly global economic environment,” says Antonio Rodriguez, a Cambridge venture capitalist, bitcoin “is digital gold — that is, it is a store of value that is like gold, but better because it can easily cross borders, as it does from places like Venezuela, and has proven resilient in the face of challenging governance, major theft, and everyone in power hating the currency and what it represents.” Even if there’s only a tiny chance of bitcoin becoming digital gold, and bitcoin taking over some of the functions that gold performs today, Rodriguez says, that means that bitcoin hitting $100,000 “is not in the realm of the impossible.”
One thing that everyone in the bitcoin world is watching is when — or whether — more established financial institutions will start providing services related to the currency. Custody, for instance — giving you a secure place, rather than an unregulated website, to stash your digital riches. That would make it feel safer for more average folks to put some of their assets into bitcoin and other crypto currencies, Danco says.
Fidelity Investments could be a first-mover into offering custody services, and employees of the mutual fund giant have spoken at recent digital currency conclaves about the notion. Fidelity spokesman Steve Austin says the company won’t comment on any specific services it might launch but says Fidelity has been “researching, experimenting, and learning” about bitcoin and other digital currencies “for about four years.”
The Cambridge tech forecasting firm Forrester counts more than 500 different crypto currencies today, including bitcoin. And, Forrester chief executive George Colony says, “it would appear that there is no barrier to entry and no restriction on supply,” or people creating new kinds of crypto currencies to compete with bitcoin as a way to store value digitally. “And as you know, high supply will equal low price eventually.”
“The only difference between bitcoin and a tulip bulb,” Colony concludes, “is that you can eat the tulip.”Scott Kirsner can be reached at firstname.lastname@example.org. Follow him on Twitter @ScottKirsner.