Why people are going crazy over bitcoin and other digital currencies

Bitcoin and other virtual currencies are on a tear this year, surpassing the returns seen in stocks, bonds and most other
investments.

The price of bitcoin has tripled since the beginning of the year, surging above $3,000 for the first time Sunday before dropping by more than 10 percent the next day. Returns for ethereum — a lesser known but quickly growing cryptocurrency — have been even more dramatic: It’s gained nearly 5,000 percent, touching a record price of $407 Monday before coming down.

Meanwhile, the amount of cash in virtual currencies has ballooned. The market cap for cryptocurrencies is now more than $100 billion, up from about $20 billion at the beginning of the year, according to cryptocurrency tracker CoinMarketCap.com.

So what is going on? Some recent events may have convinced investors that these currencies are here to stay — including a move from the government of Japan to make bitcoin legal. But that only explains part of the rise, cryptocurrency experts say. Investors have been clamoring for a slice of the virtual market based on potential uses that have yet to materialize, says Garrick Hileman, a research fellow at the Cambridge Center for Alternative Finance. For instance, the currencies have the potential to disrupt the way start-ups raise money or how certain financial transactions are handled, experts say. But they’re also known to be volatile.

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