Bitcoin is off to the races again

Right now – after the recent gains – bitcoin is trading at around $380. That's right, after that peak last year, bitcoin crashed  – badly damaging investor interest. It took more than a year for that interest to return.

So what's bringing people back? The digital currency is gaining traction both in the consumer marketplace, as a tradeable security, and with regulators. To illustrate - you can donate to the American Red Cross in bitcoin, buy a new personal computer with it, or even book a holiday. 

It isn't just digital-currency enthusiasts that are bullish. Equity research firm Wedbush expects it to rise to $600 because of the growing adoption. That target includes a "high discount rate to account for uncertainty," the firm says in a Nov. 4 research note. In other words, there is a lot of risk here, but even factoring that in, the potential exists for a big gain. 

“We’re crossing the chasm from early enthusiasts to mainstream adoption," says Adam White, a vice president of business development with bitcoin exchange Coinbase. 

As more people use bitcoin, retailers have become increasingly welcoming of it.

Companies including Dish, Microsoft, Dell and Expedia are accepting cryptocurrency as payment. 

Perhaps most crucial: payments startups and legacy players including Square, Stripe, and PayPal are integrating it into their offerings. 

Regulation is evolving

Regulators in the US and internationally are embracing bitcoin now, instead of fearing — or, worse still, thwarting — it.

"What there needs to be is greater regulatory clarity," said Jerry Brito, executive director at Washington-based advocacy group Coin Center. "It's a very different world than it was in 2013." 

Bitcoin legislation is being readied in several US states, Brito said.

In October, a consortium of startups announced the establishment of the Blockchain Alliance, a partnership between bitcoin companies and US and foreign agencies including the Department of Justice, FBI and the Commodity Futures Trading Commission, among others. 

Last month, the European Court of Justice said bitcoin transactions will be exempted from a consumer tax, which could lead to even greater use of the cryptocurrency.  

Another big step, yet to come, would be the declaration of bitcoin by US regulators as a security. 

Big investors are buying in

Another factor lending greater legitimacy to bitcoin is the investment capital being poured into related startups. 

Recently, the total dollar volume backing startups in the sector crossed the $1 billion threshold. But the investors behind the money have also increased bitcoin's visibility.

The roster of bitcoin startup backers includes Wall Street investment banks; the New York Stock Exchange and NASDAQ; and leading credit and debit card companies including Visa, MasterCard and Capital One.

"The global banks and wire-houses have meaningfully gotten involved in the space," said Michael Sonnenshein, director of business development and sales at Grayscale Investments, which manages the Bitcoin Investment Trust, a publicly listed vehicle that tracks bitcoin. "In 2013, they were beginning to dip their toe, but primarily behind closed doors and within internal working groups."

There are still lingering issues surrounding bitcoin's validity.

To be sure, it is volatile and – because its loosely regulated – a draw for frauds and criminals. 

Some big names in the crytptocurrency community — perhaps most notably Blythe Masters, the CEO of Digital Asset Holdings — have been critical of bitcoin and say the underpinning blockchain technology is actually what's most sexy to Wall Street.

But right now, to many investors, bitcoin is hot. And it could stay that way.