Bitcoin may hit $4,000 by the end of the year

http://www.cnbc.com/video/3000623498

The digital currency bitcoin is currently still near all-time highs, but bullish calls remain for the asset. One investor thinks it could almost double to $4,000 by the end of 2017.

Bitcoin hit an all-time high in late May, reaching to $2791.70 according to CoinDesk data, recording a 180 percent rally year-to-date. There was a subsequent price correction towards $2,100 but bitcoin currently stands around $2,468.56. The market cap for bitcoin has swelled to more than $40 billion.

The bitcoin rally has been fueled by several causes:

Japan passed a law in April recognizing the digital currency as a legal method of payment, leading to a surge in demand from Asian countries.
The U.S. Securities and Exchange Commission is reviewing a decision regarding approval for a bitcoin-based exchange traded fund proposed by Cameron and Tyler Winklevoss, known for their lawsuit against Facebook founder Mark Zuckerberg.
Other countries, including Russia, are looking at how to regulate bitcoin in order to tax it, but this could further stimulate demand for the cryptocurrency as it becomes legitimized.
Daniel Masters is the chairman of XBT Provider, which offers a "bitcoin tracker" that can be traded and exchanged on the Nasdaq exchange in Stockholm. He expects Bitcoin to reach $4,000 by the end of the year.

"Bitcoin is emerging as the transactional layer of the internet, as programmable money and as digital gold. That's the big picture," he told CNBC's Squawk Box on Thursday.

Masters says the trend for high volatility in bitcoin is being diminished due to bitcoin's proliferation, with more products and exchanges set up, as well as the development of a short side of the market. He thinks the next catalysts for bitcoin price growth will come from greater volume.

"What we've seen at XBT Provider is an increase in coverage and an increase in penetration into both the retail and institutional market. We're now being covered on Nasdaq OMX by 27 different broker dealers, and that is a stark increase from what we saw a year or two ago," he said.

Garrick Hileman, economic historian at the University of Cambridge and London School of Economics, agreed that recent developments are increasing demand for bitcoin.

"Macroeconomic and positive regulatory developments are fueling significant demand in many markets, particularly South Korea and Japan, as well as India, Venezuela, Nigeria, and elsewhere," he told CNBC via email on Thursday.

However, he raised concerns about the potential split that faces the digital currency. The bitcoin community is debating how to fix a scaling issue, as the number of bitcoin transactions that can happen at any one time is limited and causes a backlog of transactions.

One solution is to increase the size of the blocks on the blockchain in order to process more transactions, but this would involve splitting the blockchain, causing a fork and creating two major blockchains, which would effectively create two different coins.

"A successful resolution of the bitcoin scaling debate would likely propel the currency to new highs. However, if the bitcoin ecosystem divides then the price could plummet," Hileman warned.

"The frothiness we are observing in the initial coin offering market right now may trigger a regulatory backlash, which could negatively impact bitcoin's price," he added.