By Paul Vigna and Caitlin Ostroff

Bitcoin topped $50,000 for the first time Tuesday, doubling in value in less than two months.

The digital currency traded as high as $50,584.84, up about 5% for the day and more than 74% for the year, according to CoinDesk. The total market value of bitcoin in circulation rose to $940 billion. Bitcoin later receded from its high, closing up 0.95% at $48,642.45.

The $50,000 level is an "emotional level for people in the space," said Brian Melville, head of strategy at trading firm Cumberland. But it is also a simple result of supply and demand, he added.

From August through December, about 150,000 new bitcoins were minted, he estimated. The firm calculated that about 359,000 bitcoins were bought in the same period, and that imbalance has continued in 2021. "It's a really important metric to watch," he added.

That buying demand has brought not only a price rally, but growing acceptance and recognition of an asset that was once an object of derision for regulators and lawmakers.

In February alone, Bank of New York Mellon Corp. said it would start treating bitcoin like any other financial asset. Mastercard Inc. said it would integrate bitcoin into its payments network this year. And Tesla Inc. said it purchased $1.5 billion worth of the cryptocurrency for its corporate treasury and plans to start accepting it for payment.

Additionally, billionaire investors such as Paul Tudor Jones and Stanley Druckenmiller have jumped into the space, attracting further attention. Interest from financial professionals -- investors and institutions -- has become a key driver of the rally.

More financial-services companies now allow customers to trade bitcoin, including the popular trading app from Robinhood Markets Inc. and Square Inc.'s platform. Last year, PayPal Holdings Inc. added crypto trading.

But skeptics say bitcoin is largely a speculative play among investors hunting for big returns in an era of easy money.

Investors chasing momentum have piled into bitcoin in recent months as the price has risen. And despite the recent adoption by companies such as Tesla, many finance chiefs remain dubious about investing in the digital currency due to its volatility and lack of practical uses.

Bitcoin is created by a process known as mining: People solve complex mathematical puzzles using powerful computers to unlock or mint new coins. The maximum number of bitcoins that can be created is 21 million, under the original design of the cryptocurrency. The coins themselves can be almost endlessly divided, down to the eighth decimal place, or into hundred millionths.

In its first few years, bitcoin was little more than an anarchist project, said Caitlin Long, the founder and chief executive of Avanti Bank, a crypto-focused bank chartered in Wyoming. That has changed. "It's still edgy, still tech-forward, but it's mainstream now," she said.

The increased demand from both retail and institutional investors has resulted in a supply-demand imbalance that has pushed the price higher, said Mr. Melville.

Bitcoin was unveiled in 2008 and its network went live in January 2009. Created by Satoshi Nakamoto -- the pseudonym of a still-anonymous founder -- it was envisioned as a digital version of physical cash. It quickly attracted a disparate group of programmers, anarchists and libertarians.

Its early years were full of both promise and scandal. Bitcoin was held out as the solution for everything from inflation to poverty to government oppression. But the community that traded it was marked by scams and Ponzi schemes. Most of the early exchanges for trading, notably Tokyo-based Mt. Gox, collapsed for a variety of reasons.

Around 2013, Silicon Valley and a new crop of entrepreneurs started to put real money and effort into building financial services that would make bitcoin more stable. Many of the biggest companies in the industry came out of this effort.

Critics say bitcoin is less of a currency and more a speculative fixation, and that its price may be due in part to manipulation. Most commodities, even gold, have some utility, said economist and vocal bitcoin critic Nouriel Roubini. Bitcoin, though, has very little practical use and doesn't provide a steady income like a bond or stock dividend.

"Many are buying at prices that are ridiculous," he said. "They're going to get burned and once they get burned they are not going to come back."

European Central Bank President Christine Lagarde is a skeptic. In a recent interview, she said bitcoin wasn't a real currency and that the ECB wouldn't buy or hold it. She has in recent months called for more regulation of cryptocurrencies, noting their use in money laundering.

That is a legitimate concern, to an extent. In 2020, illicit activity using cryptocurrencies totaled about $10 billion, according to a report from analytics firm Chainalysis. However, that was down from $20 billion in 2019.

Regardless, bitcoin continues to attract fresh attention. Miami Mayor Francis Suarez on Thursday said that the city was exploring the use of bitcoin, potentially paving the way for city employees to receive some of their salary in bitcoin and residents to pay fees and taxes with the digital currency.

Write to Paul Vigna at paul.vigna@wsj.com and Caitlin Ostroff at caitlin.ostroff@wsj.com

(END) Dow Jones Newswires

02-16-21 1746ET