The U.S. dollar has had a nice run. It's been the talk of global currency trading all year long.
And why not? After years of a weak greenback due to dovish Federal Reserve policy, the Dollar Index has extended big 2014 gains, up near-9 percent against a basket of major world currencies this year. Some individual currency trades, like USD/Brazil Real, have netted currency investors huge returns.
But to find what's arguably been the best global currency in 2015, an investor might need to put quote marks around the term "global currency."
It would have been easy to dismiss bitcoin after a surge that had taken the digital currency's price over $1,000 on some exchanges crashed in late 2013, but it's back, up more than 40 percent this year to a value of $428. And bitcoin backers say despite all of the detractors and the 2013-14 doldrums, the controversial digital currency will continue up, as the number of bitcoin users and transaction volumes around the globe surge.
"We're seeing this up and to right growth in transactions," said Coinbase vice president Adam White. "That's the utility value going up as people use it more."
The number of financial institutions — as well as self-regulatory bodies, like the Depository Trust Clearing — endorsing the blockchain technology has given credit and value to bitcoin. "It's gone from cool tech 'I don't understand' to more mainstream," White said.
Bitcoin: By the Numbers
Venture capital investment in bitcoin-related businesses reached $1 billion in 2015.
The 100-millionth bitcoin transaction is expected to take place before the end of the year (per TradeBlock estimate).
More than 200,000 daily bitcoin transactions took place on average in December, up 136 percent from the year-ago period.
More than 51 percent of bitcoin users are based outside the U.S. versus 44 percent in January 2015 (based on Coinbase users).
Bitcoin-related code written by developers reached 7,000 in December, up from 1,000 bitcoin codes in mid-2013. The number of PayPal-related codes is below 3,000 (based on Github depository references).
What can explain the rapid rise in bitcoin from October to today, a period of three months during which the majority of the digital currency's annual gain has been made?
Bitcoin backers say part of the market's makeup defies any direct explanation for price movements over short periods of time, but there are a variety of factors that can help explain the surge, without any one being "provable."
Right around the time bitcoin began to surge in October, the European Court of Justice rules in late October that bitcoin transactions were not subject to the VAT (value-added tax).
Recent months saw the price for bitcoin paid in China surge to a notable premium, a sign of high demand.
The year 2016 is also going to be known as a "halving year" for bitcoin: Miners, those who "mine" bitcoins to add to the supply, will be paid half the amount as previously for mining new coin, an event that takes place every four years. But bitcoin experts said that "efficient market theory" implies the market has already "baked" this event into bitcoin's price.
Skeptics, not surprisingly, remain unconvinced.
Marc Chandler, senior vice president at Brown Brothers Harriman and a global currency expert, has followed bitcoin for years and in print has scoffed at some Wall Street predictions: for example, that central banks should consider bitcoin for reserve purposes and that its intrinsic value could be more than $1,000.
Chandler is still a nonbeliever. "I don't think it meets the economic definition of money."
Chandler's skepticism continues to be predicated on what he views as the contradiction between bitcoin's use as a store of value (hoarding it in a time of fiat currencies) and as a means of exchange (using it as an alternative to fiat money). The low volume of bitcoin trading and lack of liquidity deny it the critical mass needed to qualify as money, he said.
"Ultimately, my grocer, my landlord, my favorite bar will not accept bitcoins. The places that do are the limited exceptions, quaint marketing gimmicks, like a NY shop accepting euros when the dollar was weak," he said.
Barry Silbert, founder and CEO of the Digital Currency Group, didn't disagree. "I am the first to admit that as a currency, bitcoin has a long way to go and is high risk, highly volatile," said Silbert, who created the Bitcoin Investment Trust (GBTC).
"Until the monetary base is significantly larger than the $7 billion it is today, it can't function as a global currency for cross-border payments and money transfers," Silbert said.
But with the longer-term case for bitcoin needing more time to play out, Silbert maintains what he called a "very unpopular position" for bitcoin as an investment today: "The killer app for bitcoin is speculation," Silbert said.
Investors with sizable portfolios can and do carve out a portion for higher-risk investments. "Putting 1 percent into high risk is not a bad idea," Silbert said, but he added, "People should invest in bitcoin only what they can afford to lose."
He compared bitcoin to another controversial "store of value" investment that is often positioned against fiat currencies: gold. The gold market has a value of $7 trillion today versus $7 billion for bitcoin. "If over the next decade 1 percent of gold moves into bitcoin, that's $70 billion," Silbert said. "And bitcoin is much more useful. Gold has little in the way of industrial use."
"Exposure to bitcoin as an asset class doesn't mean dropping 20 percent like with the S&P 500, but 1 percent for asymmetric upside," White said. "Professional traders, hedge funds, high-net-worth individuals and John Smith in Tulsa all want to buy a little," he said.
The bitcoin-backer outlook tends to extremes, befitting a volatile, and controversial, currency.
"It's hard to envision a scenario where bitcoin is anything other than zero or significantly higher than today," Silbert said.
White was slightly more tempered in imagining the worst-case scenario: "It's never going to zero, but could be only $10 to $20 dollars" if it never rises above the "niche-use case."
Carlos Maslatón, head of the Xapo bitcoin network, a VC-backed start-up that has former Treasury Secretary Larry Summers and former Citigroup chairman John Reed among its advisors, predicts that the annual high that bitcoin has reached will be surpassed in 2016. And the 2013 all-time high point for bitcoin should also be surpassed next year.
Nevertheless, Chandler said he hasn't seen a leap of faith among clients. "Our client base at BBH is primarily asset managers — mutual funds, insurance companies, pensions. As far as I can tell, they do not invest in bitcoins, but might invest in some elements of the ecosystem."
Coinbase's White said that focusing on day-to-day or annual price movements is a window that everyone loves to use "because it hits you in the gut and it's real and easy," but White said that the price increase in bitcoin isn't the most important development of 2015. The increase in the number of users and transactions, as well as the increase in venture capital investment, are just as important.
Though he also offered a simpler explanation for another year of bitcoin gains: "We are crossing from early adopters to mainstream users and pragmatists. The market is valuing the long-term optimistic view that bitcoin will win."