From the beginning, the concept has been alluring if not utopian. Imagine a currency that is not tied to the whims of politicians, the foibles of central bankers, or the fortunes of a particular country. Rather than relying on a government to mint a currency, users could “mine” their own bitcoin by running software — contributing their own computing power to verify other bitcoin transactions. Or they could simply buy bitcoin on one of several online exchanges, investing in it like any other currency. To many, it seemed like a good bet.
By the fall of 2013, with the U.S. government locked in yet another showdown over raising the debt ceiling and facing the specter of an unprecedented default, interest in virtual currencies like bitcoin peaked. The price of a single bitcoin reached a high of $1,108.80 according to Coinbase, the first licensed U.S. bitcoin exchange.
But the frenzy would be short-lived.
Around the time prices were reaching their high, U.S. authorities were exposing what they considered the dark side of bitcoin, busting what the FBI called “a black market bazaar for drugs and illegal services” — an underground web site known as Silk Road. In a case explored in the latest episode of “American Greed,” the FBI arrested the site’s 29-year-old founder, Ross Ulbricht, who was eventually sentenced to life in prison (he is appealing his conviction). And the government seized more than $30 million worth of Silk Road’s currency of choice: bitcoin.
Meanwhile in Japan, the world’s largest bitcoin exchange, Mt.Gox, was spiraling into bankruptcy amid allegations it was a conduit for money laundering.
Within two months of Ulbricht’s arrest, bitcoin lost nearly half its value. The price would continue to decline for more than a year, hitting a low of $203.77 at the beginning of 2015, according to Coinbase.
But lately, bitcoin has been rebounding, hitting $757.77 in June. The price has leveled off since then but is still roughly three times its 2015 lows. Santori says an even better indicator of bitcoin’s apparent rebound is volume.
“After the Silk Road was taken down, we did see a hit in volume,” he said. “It confirms that bitcoin was being used on the Silk Road and used in earnest. But volume went back up again, and now it’s many, many times what it was back then.”
Indeed, according to the Luxembourg-based technology firm Blockchain, more than 200,000 bitcoin transactions are taking place daily now, compared with just 90,000 at the peak of the frenzy in 2013.
“Digital currency today is so much farther along than it was even back in 2013 when it arguably started to reach its height and peak in sort of mass market popularity,” Santori said.