Proponents of the digital currency bitcoin frequently cite its decentralized nature as one of the primary attributes that excites them about the technology. Meanwhile, bitcoin investors are no doubt thrilled with its rapid price appreciation, which has seen it nearly triple in 2017 alone.

According to Morgan Stanley, however, the latter group may not be able to see further gains unless the former gives up some of its autonomy.

The investment bank noted that the rapid appreciation of bitcoin and other cryptocurrencies, like ethereum, had elicited many inbound phone calls to both our banks and tech teams as the gains entice prospective investors and adopters. However, it added, governmental acceptance would be required for this to further accelerate, the price of which is regulation.

Cryptocurrencies as a category recently topped $100 billion in combined market capitalization, thanks to blindingly fast surges by bitcoin and ethereum, the two largest digital currencies.

Bitcoin BTCUSD, +1.37% rose 2.4% to $2,746.83 on Tuesday; recently, it hit an all-time high above $3,000. Ethereum fell 1.7% on Tuesday, but has seen an even bigger year-to-date rise than bitcoin. Both have seen spikes in trading volume.

Both the size and speed of bitcoins recent rally, as well as the recent pullback, has some investors wondering whether a longer-term downtrend is in store, even though one metrica kind of modified P/E ratio that has been developed by analystssuggests its valuation isnt currently at an extreme.

It is not clear why cryptocurrencies are appreciating so rapidly (apart from the appreciation itself drawing in more speculation against a potentially inefficient ability to sell), Morgan Stanley wrote, though it was skeptical that further gains could continue in the current regulatory environment.

Read: Bitcoin is up over 400% in the past yearwhats stopping it from going mainstream?

The investment bank didnt specify what types of regulation might be necessary to further push bitcoin higher, noting that the specific changes needed may be different for different cryptocurrencies, all of which use blockchain technology, the centralized ledger that records all such transactions. For blockchain overall, regulators are involved and watching closely, Morgan Stanley wrote. Some have suggested privacy could be improved. Regulators are looking to have a master key so all transactions are visible to them.

Blockchains are peer-to-peer networks that record and verify transactions, and while they were designed to be openmeaning anyone could see the history of various tradessome institutions have created private blockchains that arent publicly accessible.

Bank of New York Mellon Corp. BK, +0.96% for example, developed a blockchain-based platform for U.S. Treasury bond settlement that has been running internally since March 2016. The bank was unlikely to have involved regulators given [the] internal nature of the transaction, Morgan Stanley wrote. Bank of New York Mellon is planning to roll this service out to clients, but it will have to engage in dialogues [with regulators] if moving to commercial applications.

Bank of New York Mellon didnt immediately return requests for a comment.

Talk of regulation in bitcoin comes months after the SEC back in March rejected a proposal that would have led to the creation of bitcoin-focused exchange-traded funds, the Winklevoss Bitcoin Trust, citing a lack of. The SEC has since said they would review that decision. Meanwhile, a separate proposal Grayscale Bitcoin Investment Trust to begin trading on the New York Stock Exchanges ETF platform is still under review. Both events might provide the regulatory underpinning that could further legitimize the digital currency in the eyes of investors, as well as increase its liquidity.

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Bitcoin needs government regulation to rise further, Morgan Stanley says - MarketWatch

In Brief Renowned author, futurist, inventor and Google's head of engineering, Ray Kurzweil, spoke on his reticence to embrace bitcoin. He is not the only expert to have their qualms about the burgeoning digital currency.

Ray Kurzweil, a leading futurist, author, inventor, and the head of Googles engineering lab, has made some impressively accuratepredictions about the future. However, this may not be the best news for the burgeoning cryptocurrency, Bitcoin. Kurzweil spoke at the Exponential Finance Summit in New York City late last week and he had some less than flattering things to say about the currency. While he may see the value in the decentralizationof currency, he doesntfeel like Bitcoin is the way forward.

He explained:

Currencies like the dollar have provided reasonable stability. Bitcoin has not. And its not clear to me that the whole mining paradigm can provide that type of stability Weve seen tremendous instability with bitcoin, so I wouldnt put my money into it. I certainly do think there could be alternatives to national currencies emerging in the future. Algorithmic ones are a possibility, I just dont think weve arrived at the right algorithm yet.

Kurzweil is not the only high-profileBitcoin skeptic or opponent. Billionaire investor Mark Cubanspoke out about Bitcoin last week, denouncing it as a currency and discussing it as a bubble. Kurzweils comments echo these sentiments, especially with his view of the cryptocurrencys instability. However, Daniel Roberts from Yahoo! Financesees Kurzweils view of that instability as an oversimplification. When looked at in the long term, Bitcoin is showing steady gains.

Bitcoin has enjoyed a meteoric rise in recent weeks as prices have surpassed $3,000 (albeit briefly). In the first moments of 2017, Bitcoin could barely reach the $1,000 mark. As of today, the cryptocurrency stands at more than $2,550.

Bitcoin is powered by blockchain technology. A blockchain is a decentralized ledger that allows for complete anonymity, security, and transparencyfor all transactions taking place on the ledger. Kurzweil is more optimistic about blockchain, saying, I think once we can demonstrate confidence, then yes, a blockchain currency makes sense, and being able to document transactions securely, but theres a lot to work out.

In an effort to work out those kinks, many companies and even some countries are adopting blockchain technology. Some countries are even exploring switching their national currencies over to cryptocurrencies. We are in the early stages of its development, but this could go down as one of the few predictions Kurzweil gets wrong.

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Ray Kurzweil Says He Wouldn't Put His Money in Bitcoin but Doesn't Dismiss Blockchain - Futurism

In the first-ever reported case of a US State funding what looks to be a Bitcoin mining operation, Montanas Governor recently announced that $416,000 was awarded to a data center that provides blockchain security services for the bitcoin network.

Governor Steve Bullock recently announced $1,124,030 in economic development grants to assist Main Street businesses across Montana with creating 116 jobs, providing workforce training and developing plans for growth and expansion.

The funds are being awarded through the Big Sky Economic Development Trust Fund (BSTF) and the Primary Sector Workforce Training Grant (WTG) programs at the Department of Commerce, Office of Tourism and Business Development.

- The office of Montana Governor Steve Bullock

Very little information is available online about Project Spokane LLC, there is no website or contact information available online. However, third-party commercial business reports that list the company generally agree that Project Spokane LLC is a privately held company listed in Greenwood Village, Colorado.

Some listings states that the company has an annual revenue of $750,000 and employs a staff of approximately 6, with business launch dates all listed in early 2016. The company is often categorized under IT & Managed Service Providers, while at least one directory has Project Spokane featured under Service Management and Malware Remediation.

However, in July of 2016 Project Spokane LLC applied for a 7.2kV overhead power distribution line for a site in Montana, referred to as the old Bonner Mill Site. The application clarifies that the powerline is to serve a new bit coin processing center, which is to be located on a portion of the old mill site. The projects electrical requirements exceed the current electrical service onsite, states the application.

- Rights of Way Applications 17412

Bitcoin mining operations are power hungry businesses, and often run where power is cheap. According to the US federal Energy Information Administration, Montana has middle-of-the-road commercial electricity rates, averaging $10.04 per kilowatt-hour (kWh). That price puts it very close to the national median for the US.

However, in the county where Project Spokane is setting up shop, there is a local energy cooperative that charges large commercial installations as little as $0.0436 per kWh, which would make bitcoin mining extremely profitable.

For comparison, in Washington State, where John McAfee has set up the Bitcoin mine for MGT Capital, the industrial average is the lowest in the nation, $4.54 per kWh. McAfee has stated, however, that hes using a nearby hydroelectric dam to inexpensively generate the electricity and cool his mining equipment. His effective energy rate is still unknown.

- John McAfee

Although Montana is the first state to fund a Bitcoin company, a few other States have tried or run initiatives and programs to boost blockchain technology use. The first attempt was in 2015, when New Jersey attempted to launch the ambitious Digital Currency Jobs Creation Act, which was proposed to give Bitcoin and other digital currency businesses a tax break and attract them to the state. The program was formed in the wake of the infamous BitLicense across the river in New York. However, the bill has been introduced to the NJ Senate several times and failed to gain any traction.

Delaware also drafted a bill in 2015, which has passed the Senate but is being held up by the states legal review process. The state a popular destination for business incorporation, and wants to use a blockchain as the primary means to create and manage corporate records. The bill is expected to be enacted sometime this year.

In the meantime, the Illinois Department of Financial and Professional Regulation announced the Illinois Blockchain Initiative in November. The initiative was created to investigate the benefits of Blockchains used at the state level. Secretary Bryan Schneider states that his department would like to educate ourselves on the technology as well as its societal, economic and legal implications. Learning about the technology before regulating it stated goal.

On the federal level, spending towards blockchain research has been an order of magnitude larger. In July 2015, the US National Science Foundation (NSF) awarded US$3 million to the Initiative for Cryptocurrency and Contracts (IC3). The three-University initiative consists of a team from Cornell, the University of Maryland, and UC Berkeley. Focusing on smart contracts and developing new cryptocurrency systems that address pain points attributed to Bitcoin, the program is also helping to establish cryptocurrency as a prominent research area, and make a big impact in shaping the future of financial transactions and e-commerce, according to the principal investigator, Elane Shi.

In January of this year, the NSF started looking for teams to fund with as much as US$8.5 million. Solutions such as the introduction of blockchain technology are needed to ensure the integrity and confidentiality of data as it traverses multiple environments such as mobile, cloud, campus, and Internet networks, states the NSF.

The Department of Homeland Security (DHS) has also been funding blockchain technology projects, to the tune of US$2.25 million so far. Through its Small Business Innovation Research program, the DHS has been learning about Blockchain Forensics, the method of tracking transactions and identifying relationships across the blockchain. BlockCypher is a forensics company, and the largest recipient of funds from the DHS to date. Ram laboratories has also received funding, as has a custom blockchain solutions provider called DigitalBazaar, and the identity solution Evernym.

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The State of Montana funds company working on a 'bitcoin processing center.' - Brave New Coin

One of the biggest financial stories of 2017 has been the seemingly unstoppable rise of bitcoin, which has more than tripled this year and seems to make new records by the day.

Such a rally has inevitably raised questions over whether there is a bubble in the digital currency, or in the broader space of cryptocurrencies, which earlier this week topped $100 billion in combined market capitalization. Breaking that milestone was largely due to bitcoin BTCUSD, +3.83% which by itself accounts for nearly half the value of the still-nascent sector. However, a new measure of bitcoin valuation, one based roughly on the price-to-earnings ratio applied to stock valuation, suggests that rally still has room to grow.

Read: 3 reasons why bitcoins surge may not be a bubble

Opinion: Three reasons to fear the coming crash in bitcoins

Gauging whether bitcoin is overvalued is tricky, as it is divorced from many of the standard attributes that can measure a securitys fundamentals. Unlike a stock, bitcoin has neither traditional revenue nor profits behind it, ruling out such equity statistics as price to sales or earnings before interest, tax, depreciation and amortization.

And because it isnt backed by a central bank or government, viewing it in the way one might a currency isnt an apples-to-apples comparison. A commodity like oil can be measured based on the principles of supply and demand; bitcoin has no equivalent underlying asset. (The Internal Revenue Service classifies bitcoin as property rather than a currency, while the U.S. Commodity Futures Trading Commission classifies it as a commodity.)

However, some analysts have developed what could be considered a price-to-earnings ratio for bitcoin, one that suggests the recent surge may not have taken it to bubble territory.

Bitcoins P/E ratio looks at the digital currencys network valuethe number of outstanding bitcoins multiplied by price; this figure is currently $44.69 billionagainst its daily transaction volume.

The reason I call it a P/E ratio is because when I think about what a P/E signifies for equities, it is basically the function of market cap and earnings. The earnings are the underlying utilitythe cash flow of the company, explained Chris Burniske, a blockchain analyst at ARK Invest, who has helped to develop this metric.

Bitcoin P/E is composed of similar concepts. Instead of market cap, you have network value. Thats then divided by the underlying utility of bitcoin, which is its ability to move money. Thats bitcoins core utility, same as a companys core utility is earnings.

This metric currently gives bitcoin a ratio of roughly 50, which is under its long-term average and well below past peaks, which have been above 200, and one time spiked to nearly 450.

On a stock, a P/E ratio of 50 would be pricey, Burniske noted, but I dont know if it should be considered pricey for bitcoin. It looks to be in a comfortable range, it isnt an outlier and right now the broad takeaway I have is that it doesnt look like were due for a mean revision.

He added that over time, cryptocurrencies would find a base range for valuation on this metric, one that lets investors know what would be reasonable to pay based on the cryptos daily utility.

While high P/E ratios are often seen as sell signals for stocks, Burniske suggested that any kind of extreme reading on this metric could signal a bitcoin selloff.

This ratio drops when bitcoin is in the late stages of rallies, because investors would take profits or move their money between exchanges out of nervousness. That leads to a lot of transaction value, which makes the denominator higher. Thats why its important to me, from a valuation standpoint, that it isnt high or low.

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Is bitcoin in a bubble? This metric suggests there's more room to grow - MarketWatch