Bitcoin’s Rally Has Already Outlasted 2017’s Epic Run

Bitcoin bulls say the money fueling this year’s rally is coming from more reliable sources than past rallies. Since September, big new investors have collectively bought about half a million bitcoins, worth about $11.5 billion, according to analytics firm Chainalysis, which tracked the holdings of investors with at least 1,000 bitcoins in wallets that are less than a year old.

Notable buyers this year include billionaire investors

Paul Tudor Jones

and

Stanley Druckenmiller,

and companies like

Square Inc.,

Microstrategy Inc.

and Massachusetts Mutual Life Insurance Co.

There are more smaller buyers, too. There have been more than 38 million transfers this year of less than $1,000 of bitcoin into personal wallets, according to Chainalysis. That is nearly double the 20 million in 2017.

“This bull run feels very different,” said Pascal Gauthier, chief executive of cryptocurrency-hardware maker Ledger. “2017 was a crazy retail bull run. This time it’s serious.”

In 2017, the digital currency opened December at $10,542. Just 18 days later, it hit an intraday high of $19,783.

Yet bitcoin closed above the $19,000 level only once and above the $18,000 level only three times. Twenty-four days after hitting its record—to compare with the current rally—bitcoin was down 29% and had fallen as much as 38%. Thirty-one days after the peak, it traded under $10,000, off nearly 50% from the high. It would spend the next two years languishing.

“The bubble burst,” said

Meltem Demirors,

chief strategy officer at London-based asset management firm CoinShares. “Everyone started writing bitcoin obituaries again.”

Bitcoin’s backers hope that the industry has grown enough to handle its newfound fortunes.

The cryptocurrency was designed to operate as a digital version of cash that would be outside the control of governments or banks. Its software runs on a network of linked but independent computers. Anyone can download and run the program and become part of the network, but no party has control to make unilateral changes.

That decentralized structure makes bitcoin an attractive asset for people looking to move money quickly and cheaply across borders, shield assets from government oversight, or simply hold an asset that isn’t lashed to the value of the U.S. dollar.

Because it is a relatively new idea—it was unveiled in October 2008—bitcoin has gone through regular periods where a new crop of investors discover and get excited about it. In the past, that has overwhelmed the market infrastructure, such as when the exchange Mt. Gox collapsed in 2014.

The rallies also sparked regulatory backlashes that damped enthusiasm, such as when the Securities and Exchange Commission cracked down on initial coin offerings in 2017. The rally that year was partly driven by an investment boom for those offerings: startups and projects that created and sold their own digital currencies as a funding source.

ICOs raised more than $4 billion in 2017, before the craze flamed out. Most of the projects were ill-conceived, poorly designed or outright frauds. Regulators cracked down. Only a handful survived.

There is more regulatory clarity this year. A number of agencies, including the SEC and Internal Revenue Service, have standardized rules around cryptocurrencies.

Still, a proposed new rule from the Treasury Department on Friday that would force some crypto traders to provide information about their identities was opposed not only by the bitcoin industry, but even by some members of Congress.

Although increasingly bold price predictions proliferate, canny insiders are wary of bitcoin’s regular tides and say its notorious volatility hasn’t disappeared. After hitting a high Dec. 1, the price fell as much as 12% before rebounding.

“We haven’t gone into a bullish cycle from which we won’t see a bear,” said

Mati Greenspan,

founder of research firm Quantum Economics. “That’s not how markets work.”

Write to Paul Vigna at paul.vigna@wsj.com