The price of Bitcoin rose by another $US500 this week after breaching $US5000 last week, making investors huge fortunes. But market experts who've seen their fair share of booms and busts are scratching their heads.
The volatility is particularly high. Bitcoin reached almost $5000 on September 1 this year and fell to $3200 over the following two weeks. But just like in previous set-backs, the cryptocurrency went on to more than recover from the fall.
The big bubbles of recent decades - US house prices that came crashing down and triggering the global financial crisis or the dotcom crash of 2000 - took years to rise by less than 10 times.
The US dollar price of Bitcoin, the leading cryptocurrency, has risen almost six times since just the start of this year.
Although it may be bonkers, the run in Bitcoin likely has some way to go. That's because it usually takes fairly widespread participation in a speculative bubble before it bursts.
At this stage, the users and investors in Bitcoin tend to be younger and tech savvy. However, the recent emergence of investment seminars promoting cryptocurrencies may change that.
In Sydney alone in November there is Break Into Bitcoin and the USI-Tech Aussie Tour that promise to show attendees how to make fortunes from virtual currencies.
And there are e-books that promise to turn just a few dollars into a fortune, very quickly, with just a few simple steps.
While Money makes no claims about the merits of individual seminars and e-books, the wider trend could be a sign of a frothy market.
"Just as with the telco boom early this century, with cryptocurrencies I believe there will be some spectacular failures," says Frank Watkins, the chief executive of Pro Trader share market trading software.
Michael Mylonas, 22, from Perth, has made 17 times his investment in crypto-assets, including virtual currencies and blockchain technology companies over the past several months.
Blockchain is the real revolution, he says, with virtual currencies just one of its earliest applications.
"Blockchain is the technology that is going to have biggest impact on the world in the next five to 10 years - more so than big data, more than artificial intelligence," he says. "There are plenty of scams and ponzi-like schemes in the crypto space, but Bitcoin isn't one of them."
While Mylonas has done well from investing in Bitcoin, he does not invest in the virtual currency now. That's because there are other virtual currencies whose technologies have surpassed Bitcoin.
He's making good money from rival Ethereum, which is an open software platform based on blockchain technology that enables developers to build and deploy decentralised applications.
There are hundreds of cryptocurrencies with new ones appearing all the time.
Some of them promise total anonymity, providing payments systems for nefarious activities like the buying and selling of illegal drugs and of guns, among other things. They are also outside the tax net.
Some virtual currencies are designed to target specific markets rather than general ecommerce.
Sexcoin, for example, promises totally anonymous payments for the purveyors and consumers of the "adult" entertainment industry.
Mylonas is very selective about which crypto he picks, as he reckons most of them will fail. He believes they will be regulated eventually, after which time some players will be knocked-out - if they get that far.
He thinks what is happening with virtual currencies and blockchain is a bit like what happened in the tech stock mania of the late 1990s, where some really good companies that survived tech wreck of early 2000 went on to thrive.
Apart from making money, there's a warning for our big banks in Mylonas's enthusiasm for virtual currencies and blockchain.
"My generation doesn't have trust in financial institutions," he says. "We are the generation who have grown-up in a financial crisis where the people responsible were not held accountable.
"Bitcoin doesn't have a building or a company, it's decentralised and trust is built into the technology, and people don't have that trust in big banks any more.
The music industry student and record label director is also a user of Bitcoin.
He can pay for almost everything with Bitcoin as he has a Bitcoin debit card and an app that converts the crypto currency to dollars so that it can be used everywhere.
Another appealing feature of cryptocurrency for Mylonas is that it cuts out the middle people in financial transactions and their fees.
Dee Heath is also making a killing out of crypto. The small businesswoman owns a pole dancing fitness business in Sydney's western suburbs.
She's tech savvy and has been following the rise of crypto-currency for some time.
Three months ago she invested $5000 in Bitcoin, which is now worth $14,000, at least on paper, as she has yet to convert it to Australian dollars.
She is so impressed with the return that she's considering becoming a full-time investor in virtual currencies.
"My friends were getting involved in it and I asked them about it," Heath says. "I really love the idea of online currencies and I think that everything is shifting so online now that I see a lot of potential in it. A lot of younger people are willing to take risks and there is an element of risk with how Bitcoin will perform.
"But you need to be a long-term investor who doesn't stress out if there is big dip. I only invest what I am willing to lose."
Heath says also taken some positions in ICOs (initial coin offerings), but of only a couple of hundred dollars in each because the risk is even higher than for established virtual currencies.
ICOs are where investors buy the virtual currency before if goes live on hopes of big gains once it does.
Each ICO has to bring something to market if it is to get support and one of her ICOs, Electroneum, which goes live on November 1, is the only virtual currency that can be "mined" on a smartphone.
"I am happy to stay with crypto as I feel we are still in the early stages and that there will be a lot of further growth," she says.
New Bitcoins are created only very slowly and no more will be created after 2041. Blockchains need to have their accounts verified.
This verification is carried out by "miners". These are people around the world who have spare capacity on their computers or run banks of computers and allow the blockchain to use their computer to do the calculations.
As a reward, the miner receives a fraction of a Bitcoin, or whatever virtual currency the blockchain supports.
As long as the miner is paid more than the cost of electricity to run their computers, they are ahead.
While blockchains are practically impossible to hack, the weakness in the chain is with the exchanges.
If you to want to buy Bitcoin with Australian dollars you will have to use one of the handful of exchanges like CoinJar, which has a virtual "wallet" that stores the Bitcoins and provides an ATM card to allow the user spend their Bitcoins. There's also Bitcoin Australia, CoinTree, BitTrade and about half a dozen other exchanges.
Those that have seen more than their fair share of speculative markets are scratching their heads over the massive run-up in virtual currencies.
Michael McCarthy, chief market strategist at CMC Markets, says the risks are considerable. He says such investments are nowhere near "investment grade".
"When people are making 200 times their money that attracts attention and other people want a piece of that," he says. And this is certainly at the more speculative end of the spectrum, he says. "They are a punt," he says.
Shane Oliver, the chief economist at AMP Capital Investors, says Bitcoin's price looks very bubbly.
"I still struggle to fully understand how they work and one big lesson from the GFC is that if you don't fully understand something you shouldn't invest," he says. "Cryptocurrencies are popping up like mushrooms."
It reminds him of the Wild West in the United States when the big banks had their own currencies, which led to financial instability.
"That could happen here as cryptocurrencies keep popping up and we will have blow-ups," he says.
He sees the appeal of virtual currencies but the advantages could be whittled away as banks lower their fees and regulators seek greater control over them.
What's next in crypto
Bitcoin leads the pack with Ethereum and Ripple the next-most popular. Virtual currencies are here to stay but how many of them will emerge as leaders amid the hundreds of cryptocurrencies is anybody's guess. Approach with extreme care.
Ripple: areal-time global settlement network that offers instant, certain and low-cost international payments. Ripple "enables banks to settle cross-border payments in real time, with end-to-end transparency, and at lower costs".
Ethereum: launched in 2015, Ethereum is a decentralised software platform that according to Ethereum can be used to "codify, decentralise, secure and trade just about anything". Following a hack attack in 2016, Ethereum was split into Ethereum (ETH) and Ethereum Classic (ETC). Ethereum (ETH) is probably the largest crypto after Bitcoin.
Zcash: it is a decentralised and open-source cryptocurrency launched in the latter part of 2016. Zcash claims to provide extra security or privacy where all transactions are recorded and published on a blockchain, but details such as the sender, recipient and amount remain private.
Dash: launched in January 2014, Dash (originally known as Darkcoin) is a more secretive version of Bitcoin. Dash offers more anonymity as it works on a decentralised mastercode network that makes transactions almost untraceable
Source: Edited extract from Investopedia
Real revolution is blockchain - it's a bigger deal than crypto
When thinking about the astonishing returns that investors have been making (and losing) on crypto-currencies like Bitcoin, the real revolution is "blockchain" of which crypto-currencies are just one its earliest applications.
In fact, it is blockchain that's probably the biggest thing since the advent of the internet.
A blockchain is a decentralised and distributed digital ledger that is used to record transactions across many computers.
Information held on a blockchain is shared - and is continually reconciled.
As the blockchain database isn't stored in any one location, there's no centralised version of this information that a hacker can disrupt. Hosted by millions of computers simultaneously, its data is accessible to anyone on the internet. No one owns it.
Blockchains can cut out the middle people in financial transactions, and their fees, but also presents plenty of other opportunities for new ways of record keeping.
Big businesses around the world are looking at how to use blockchains. Goldman Sachs produced a report last year that gave some examples of how blockchain could be used.
Some of these applications include using blockchain to store property records, so that prospective buyers can quickly and cheaply verify that the owner of the property really owns it.
There have been well-publicised "fat finger" errors with share trades, which have disrupted markets, but by settling share trades with blockchain not only would the risks of errors be reduced, but the costs of trading could come down.
Goldman reckons identity data stored on a blockchain could help finance firms easily and quickly check new customers as part of "know your customer" rules??? a bit like a digital passport.
The real power of blockchain to change the world is only just starting.