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For Bitcoin, A Year Like No Other

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Bitcoin took investors on a wild ride in 2017, notching a year-to-date gain of about 2,000% in early December before a fierce selloff.
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dado ruvic/Reuters

In 2017, bitcoin became one of the market’s greatest speculative crazes. It remains to be seen whether it can live up to the hype.

Even bitcoin’s supporters were surprised by how far the cryptocurrency rose. Starting the year at about $970, it rose to nearly $20,000 by December, a gain of about 2,000%. That was punctuated by five selloffs of at least 30%, including a fierce selloff in December that drove prices down 45% before the currency recovered by Friday to $14,292, according to CoinDesk, up 1,375% on the year.

Bitcoin’s bold promise was always that of a globe-changing technology. A software program released as an open-source project in 2009, bitcoin operates across a network of linked but independent computers, and allows two people anywhere on the planet to exchange value directly without any other middleman, like a bank or government.

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New Money

The virtual currency bitcoin soared in 2017, leaving other investments in the dust.

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Performance in 2017

Front-month

gold price

Bitcoin

Nasdaq

Composite

2,000

%

April 1

New Japan rules promote bitcoin use.

1,750

July 24

CFTC approves bitcoin options.

1,500

Oct. 2

WSJ reports Goldman Sachs considering bitcoin trades.

1,250

1,000

Dec. 10

Bitcoin futures launch in the U.S. as volatility soars.

750

500

250

0

N

F

M

A

M

J

J

A

S

J

O

D

Sources: WSJ Market Data Group (gold, Nasdaq); CoinDesk (bitcoin)

For Bitcoin, A Year Like No Other

The belief in that vision was intense, but generally shared among only a small circle of users. What changed in 2017 was that the vision of digital, borderless currencies jumped out to a wider market of investors flush with cash.

“The world has never seen a more perfect speculative asset than bitcoin,” said

Tom Dyson,

the founder of Palm Beach Research Group, which focuses on cyrptocurrencies.

The fever for cryptocurrencies that broke out in the spring came with plenty of warnings: JPMorgan Chase CEO

James Dimon

called bitcoin a fraud, while Berkshire Hathaway Inc.’s

Warren Buffett

questioned whether governments would let it keep growing unabated.

But investors largely ignored such comments, pumping up bitcoin and related markets. Ethereum, a rival digital currency, rose nearly 5,000%, trading near $400 after starting the year at $8. Companies launching initial coin offerings, a new version of early-stage fundraising focused on cryptocurrencies, gathered $4 billion in new capital during the year.

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The bitcoin industry’s bitter yearslong split over how to expand network capacity also came to a head this past year. One side wanted cheap, fast transactions, the other wanted fewer transactions and higher security. The latter camp won, but that led to the launch in the summer of a spinoff currency, called Bitcoin Cash that trades at about one-fifth the value of the original bitcoin but whose proponents still maintain it is a faster way to transact without bitcoin’s fees, which have risen to prohibitively high levels for smaller transactions.

It was a caustic resolution, but with a big uncertainty removed for bitcoin investors, the price began to take off.

In late August, it hit $4,000. In October, it hit $6,000. By December, it hit $10,000—and then nearly doubled again, trading as high as $19,800 on Dec. 17.

There were other important factors: In the spring, Japan put in new rules around bitcoin trading, giving it status as a payments network. In the U.S. and elsewhere, the growth in mobile payments made consumers more curious about whether bitcoin made sense for them.

By late in the year, the rally was in full throttle. More than 250 firms raised money in coin offerings, with the largest, a Cayman Islands-based firm called block.one, raised more than $700 million for its project, a proposed Ethereum-rival called EOS.

In the last week of December, it all reversed swiftly. After coming within $200 of $20,000, bitcoin prices plunged, trading as low as $10,834 on Dec. 22. The selloff swamped the entire market, erasing some of the speculative fervor.

Write to Paul Vigna at paul.vigna@wsj.com

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