Here’s our best shot at explaining why bitcoin has been soaring all year

A mere curiosity until recently, Bitcoin is about to get a big
dose of legitimacy, something that could be helping to boost its
price. This month, two of the world’s biggest exchanges will begin
trading bitcoin futures, pushing it further into the mainstream and
establishing a layer of official oversight that hadn’t previously
existed.

Professional traders have piled into the bitcoin trade,
too. Dozens of funds have sprouted up this year
to trade digital assets like bitcoin, and some big-name money
managers like Bill Miller and Michael Novogratz have also taken an
interest. Exchange traded funds are in the works, though skeptical
regulators earlier this year rejected an application for one
created by Cameron and Tyler Winklevoss.

Bitcoin isn’t actually a coin. Nor is it a piece of paper or
anything physical you can hold or put in your pocket. It has no
bank or regulator. It’s a computer code that exists on the internet
on a thing called the blockchain, a ledger of transactions.

Anonymity originally made bitcoin and other digital currencies
popular for illegal activities, especially on the internet. But
retailers gradually warmed to accepting bitcoin, and there are even
bitcoin ATMs. Online trading sites allow people to buy and sell it
in fractions of a whole, meaning ordinary people don’t have to
plunk down a big bundle of money all at once to get a piece of the
action.

To buy it, you have to get a so-called digital wallet to store
your coins and then link to a place where you can buy them.
Coinbase is one such site. It’s an app where you create an account
and link it to your bank and then use it to buy, sell and store
coins. There is a transaction fee.

Banks and financial companies have taken a keen interest in the
blockchain concept, seeing uses for it in securities settlement,
payments and other transactions far beyond tracking a digital
token.

But bitcoin has some obvious problems, extreme price volatility
being just one.

Futures industry participants, including major banks that clear
securities transactions, have warned about the risks to the system
if the bitcoin price collapses and people trading bitcoin futures
get hit with margin calls.

And if the origins of bitcoin aren’t sketchy enough — created by
a shadowy and unverified person or persons going by the name
Satoshi Nakamoto — sites where it has been trading and where people
store their coins in virtual wallets have been subject to hacking
and theft.

Just this week some $70 million of bitcoin was stolen from a
site called NiceHash, and the previously best-known exchange, Mt.
Gox, collapsed in 2014 after 850,000 bitcoins, then-worth $450
million, went missing.

No less than JPMorgan
Chase CEO Jamie Dimon and billionaire investor Warren
Buffet have called it, respectively, a fraud and a mirage. Though
on Friday, Dimon told CNBC he was open to the use of
cryptocurrencies if properly controlled and regulated.

Bitcoin bulls point to its scarcity value as a reason it will
have staying power. Only 21 million bitcoins will be in existence.
To “find” them, people do something called mining, which means
using a computer and a lot of electricity to solve math problems
that unlock bitcoins as a reward.

By devoting resources to developing blockchain technology, banks
have legitimized it, but the question is whether bitcoin will
last.

Thomas Peterffy, the CEO of Interactive Brokers and a pioneer in
the markets in his own right, is allowing his brokerage customers
to trade the futures starting Monday, with a big 50 percent margin
and hefty $5 per-contract fee.

“I’m extremely curious. This is an amazing thing,”
he said on CNBC’s “Fast Money” on Thursday.
The price could go over $100,000 before it crashes to nothing, he
said. “How silly people are it’s just amazing to me.”

culled: .cnbc