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Bitcoin is back! Price surges again

May 29, 2014: 12:35 PM ET
Follow the bouncing Bitcoin. The price has rebounded lately after a panic sell-off this spring.

Follow the bouncing Bitcoin. The price has rebounded lately after a panic sell-off this spring.

The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.

Stop those funeral dirges for Bitcoin. The virtual currency is not dead.

In fact, the price of Bitcoin on Bitstamp, one of the leading Bitcoin exchanges, is up more than 30% in the last two weeks! And it has shot up about 55% since hitting its lowest point of the year in mid-April.

bitcoinprice

What's Happening!! (One of the most underrated 70s sticoms by the way. "No Roger. No Rerun. No Rent." And check out that awesome theme song!)

Simply put, Bitcoin prices probably fell too far earlier this year due to fears about the currency's future following the bankruptcy of the once mighty Mt.Gox exchange as well as concerns regarding China and Russia cracking down on Bitcoin adoption.

Related: Here's why Bitcoin matters

All those bad headlines about bitcoins being used on illegal marketplaces like Silk Road for buying drugs and assassins for hire didn't help either. Nor did the media circus that was the O.J. Simpson-esque chase of the "is he or isn't he the creator of Bitcoin?" Dorian Satoshi Nakamoto.

Ashraf Laidi, chief global strategist and currency expert with City Index Ltd in London, said there definitely was a "panic" in the Bitcoin market this spring. He thinks that there are several good reasons to explain the rebound.

For one, Bitcoin and other virtual currencies like Dogecoin (which even sponsored a NASCAR driver this year thanks in part to donations from Reddit users) are still gaining in popularity.

The next Reddit campaign? Get the Dogecoin car into Disney/Pixar's Cars 3. Ka-chow!

The next Reddit campaign? Get the Dogecoin car into Disney/Pixar's Cars 3. Ka-chow!

Influential tech analyst/venture capitalist Mary Meeker, who became a Wall Street rock star at Morgan Stanley and now works for Kleiner Perkins Caufield and Byers, devoted a slide to the explosion in the number of Bitcoin wallets in her latest Internet Trends report. (Meeker unveiled the report Wednesday at the Re/code CodeCon conference.)

kpcbbitcoin

Click on the chart for Mary Meeker's full Internet Trends slide show.

The allure of anonymity that Bitcoin offers gets a lot of attention in the press. And it feeds the notion that Bitcoin is just for those with unsavory and/or illegal tastes.

But let's be honest, relatively low transaction fees are a big draw too. Saving money may be the bigger reason why more consumers are creating Bitcoin wallets, not some desire to have their financial history hidden from the proverbial "Man" or "Big Brother."

Related: Now you can use Bitcoin to buy a smart rifle

Major businesses are starting to notice that too.

Satellite TV company DISH Network (DISH) announced Thursday that it would begin accepting bitcoins for bill payments in the third quarter.

DISH joins a growing list of companies that have started to embrace Bitcoin, including online retailer Overstock. com (OSTK), FarmVille owner Zynga (ZNGA) and Sir Richard Branson's Virgin Galactic space tourism firm.

Still, it's important to remember that Bitcoin is in its infant (maybe toddler if you want to be charitable) stages. There will be more growing pains for the currency and more big moves up and down in price.

Leigh Drogen, CEO of Estimize, a site that crowdsources earnings and sales forecasts from a wide group of investors, remains a fan of Bitcoin. I spoke with him back in October about the currency.

At the time, he owned one Bitcoin. He still owns it and he said that the best thing for investors who believe in the long-term potential for virtual currencies to do is ignore the daily volatility.

"The price is not the most important thing when it comes to Bitcoin. It's how often it is being exchanged and how much is being purchased," Drogen said. "There are times when the price will get out of whack because there is a finite amount of bitcoins out there."

Related: Bitcoin OK for politics ... but with $100 limit

That's a great point that bears repeating. Governments don't print bitcoins. The currency is "mined" via complex mathematical transactions, and there is an algorithm in place that controls the amount of bitcoins on the market. And that number is finite.

There will never be more than 21 million bitcoins available. There are currently 12.8 million in circulation, according to Bitcoin wallet and data site Blockchain.

So in that respect, bitcoins are more like stocks than currencies. Because central banks can always issue more paper money, the value of dollars, euro, yen, etc., remain relatively stable over time. But with Bitcoin, there will often be times when demand vastly outstrips supply. Or vice versa.

Laidi adds that for a certain element of investors who had been flocking to gold as a safe haven hedge against inflation, Bitcoin is now more attractive.

Related: Where is Bitcoin legal?

Gold, like Bitcoin, has tended to perform well during times when investors fear that central banks may be devaluing their currencies with easy monetary policies. See "Reserve, Federal" or "Japan, Bank of" for recent examples.

There's also the fact that the venture capital world is taking Bitcoin very seriously. Sure, the VC community doesn't have a perfect track record. But in addition to Meeker's endorsement, heavy hitters like Fred Wilson's Union Square and Andreessen Horowitz both back Bitcoin wallet Coinbase.

So is Bitcoin dead? No. Does that mean that Bitcoin should be worth a lot more than its current price? Maybe. Maybe not.

But I agree 100% with Drogen. Don't obsess about the price. Don't treat Bitcoin as a short-term trade. What is most exciting about Bitcoin is the potential for it to truly be an alternative form of currency, not whether or not Bitcoin should be worth $50, $500 or $5,000.

Reader Comment of the Week! My column on the rotten state of Whole Foods (WFM) stock has turned out to be one of my most popular. I think that this is a company consumers either love or love to hate. Either way, it's an easy target for jokes about the hipster nature of organic food. And that's why Aaron Levitt is this week's Reader Comment of the Week winner.

Congrats, sir. Your second ROCTW award this year. Do @BostonBroker33 and @LifeSciencesMkt have to watch their backs?

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Paul Lamonica
Paul R. La Monica
Assistant Managing Editor, CNNMoney

Paul R. La Monica is an assistant managing editor at CNNMoney. He is the author of the site's daily column, The Buzz, and also tweets throughout the day about the markets and economy @LaMonicaBuzz. La Monica also oversees the site's economic, markets and technology coverage.

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