(CNBC) – Bitcoin crossed the psychologically key $2,500 level yesterday (May 24) to a record after a late Tuesday announcement from the Digital Currency Group alleviated worries about a fractious debate among cryptocurrency investors and technological developers.
“I think it’s mostly to do with the fact they may have ended the ongoing political stalemate over scaling,” Andrew Keys, head of global business development at blockchain software developer ConsenSys, told CNBC in an email. Blockchain is the technology behind bitcoin that many expect can have broader, transformative applications in industries such as financial services.
Bitcoin rose more than 10 percent to an all-time high of $2,537.16, after earlier in the day topping $2,400 for the first time, according to CoinDesk. The latest move marks a more than $500 gain since Saturday, when the digital currency first topped $2,000.
That brings bitcoin’s 5-day gain to just over 40 percent and its gain for May so far to 88 percent. Bitcoin has more than doubled this year, up more than 160 percent with yesterday afternoon’s surge.
The scaling agreement is a significant step forward for proponents of the digital currency.
Fifty-six companies around the world and 83 percent of bitcoin miners supported the “Bitcoin Scaling Agreement,” according to the Digital Currency Group. The document lays out an upgrade that should increase bitcoin’s transaction capacity.
Brian Kelly, CEO of BKCM and a CNBC contributor, said the market sentiment was most important for bitcoin prices.
“This upgrade is needed because more applications can be built on top of bitcoin and more value can be added to bitcoin,” he said. Kelly manages a fund focusing on digital currencies.
Trade denominated in Korean won also increased a share of total volume — up from single digits on Tuesday to more than 12 percent yesterday, according to CryptoCompare.
To be sure, bitcoin is a highly volatile asset, and analysts remained cautious that the Digital Currency Group’s agreement sounded the all-clear for the currency.
Alex Sunnarborg, a research analyst at CoinDesk, pointed out that “not everyone is on board” with the scaling agreement as they felt it was rushed.
Growing momentum vs. traditional assets
Regardless, the digital currency is gaining more attention in the US, especially from high-profile institutional investors.
Jeffrey Gundlach, CEO of DoubleLine Capital, tweeted on Tuesday that there could be a connection between bitcoin’s surge this year and the drop in the Shanghai composite stock index. The theory is that Chinese looking for investments outside of a weakening yuan have turned to the digital currency.
Chinese yuan-denominated trade volume in bitcoin shrank in the last few months after Beijing began investigating the digital currency exchanges, while the local stock market came under increased regulation. But the Shanghai composite, down 0.4 percent year to date, isn’t the only global asset that’s fallen while bitcoin has more than doubled in price.
Kelly and other analysts expect bitcoin can one day replace traditional safety investments such as gold.
Digital currency enthusiasts also see great value in the blockchain technology that supports bitcoin and other cryptocurrencies like ethereum. Some see ethereum as a potential structure for a decentralized, next-generation internet.
Also known as ether, the bitcoin rival has run more than 2,300 percent higher this year. Bitcoin itself has gained more than 150 percent over that time.
“That’s what people are starting to realize. It was digital gold,” Kelly said. Now, “it’s more than digital gold.”
Top: Glittering bitcoins which hit a record high yesterday. Photo: Antana (CC-BY-SA-2.0)
SOURCE: CNBC written by Evelyn Cheng