Bitcoin, the world’s first decentralized crypto-currency, has become the newest darling of financial markets But it may yet break investors’ hearts

Bitcoin entered mainstream circulation in 2009, but it was in the spring of 2013 that its value started to rise significantly, reaching just under $1,000 late that year In 2017, its price soared, cracking $1,000 for the first time in January, before doubling by May, and again by August In December, Bitcoin’s value surpassed $17,000 Bitcoin’s meteoric rise partly reflects the currency’s growing credibility Japan, for example, recently enshrined Bitcoin as legal tender

And institutional investors have increasingly added Bitcoin, along with other crypto-currencies, to their portfolios The bullish debut of Bitcoin futures – which allow traders to speculate on its future price – suggests that the role of institutional players may be set to expand, as they can now bet on Bitcoin without holding it, though this may also put downward pressure on Bitcoin’s price Many observers, including Harvard’s Ken Rogoff, think that the Bitcoin rally has the makings of a bubble, the consequences of which will depend on just how deeply financial institutions are invested when the collapse arrives If nothing else, there are plenty of reasons to doubt that Bitcoin will supplant traditional currencies, beginning with the regulatory challenges that it poses Bitcoin’s distributed-ledger technology means that it’s fully decentralized, with no governing authority, and it’s nearly anonymous, making it ideal for illegal activities like money laundering and tax evasion

That’s why China, for one, has lately cracked down on virtual currencies Given that the point of Bitcoin is to provide users a cheap and anonymous payment option, the more regulated Bitcoin becomes, the less valuable it will be And, as Rogoff reminds us, the state always appropriates currencies innovated by the private sector After introducing their own virtual currencies, central banks could simply regulate Bitcoin to death But Bitcoin’s impact is likely to extend far beyond the currency itself

The emergence of other, more adaptable crypto-currencies reflects strong demand for alternative payment options And the blockchain technology that underpins Bitcoin has much wider potential applications, including everything from smart contracts to digital passports Bitcoin is clearly a risky asset Its exchanges are unregulated; it is vulnerable to hacks and new types of cyber-attacks; there is no insurance covering losses; and it is now the source of exuberant speculation by ever-larger investors But even if the Bitcoin bubble does go bust, its legacy is here to stay