Bitcoin has often been dismissed as a niche, a fad or worse. But in 2016, it has also been one of the best-performing assets in the world.

Aided by election surprises, a spike in geopolitical uncertainty and falling price volatility, the virtual currency is drawing in traders, potentially sparking a rethink about its novelty status.

Bitcoin’s dollar value rallied 123% in 2016 to $956 per bitcoin, according to the CoinDesk price index. It has been especially strong in December, rising 29%.

For the year, that puts bitcoin’s performance far above the Dow Jones Industrial Average’s gain of 13% and even the year’s hottest commodities and currencies, which include natural gas, up 59%; crude oil, up 45%; and the Russian ruble, up 17% against the dollar.

If bitcoin’s momentum continues, one new digital coin could be worth as much as an ounce of an ancient currency, gold, by next year. With a 13% decline in the past six months, gold is trading at $1,150 an ounce.

Bitcoin hasn’t yet matched its 2013 high of more than $1,100, reached during a brief spike and followed by a long collapse to nearly $200. But the market value of all bitcoin has reached a record level, more than $15 billion, because more bitcoins have been created in the past three years. The currency’s value now exceeds that of Twitter Inc.’s $12 billion.

Fans of bitcoin, which is backed by code rather than the promises of a central bank, feel they have been vindicated by a series of events in the past two months. Donald Trump’s election and the Federal Reserve’s rate increase amid higher U.S. inflation expectations have pushed some investors to consider bitcoin, especially in China, which has seen a slide in the value of the yuan versus the dollar.

India’s banning of large rupee notes has also driven demand and fueled concerns about traditional currency, analysts say.

Bitcoin was launched in 2009 by an anonymous cryptographer and has been touted as a digital alternative to dollars, pounds, yen and yuan. It works through a network of servers that produce coins by solving complex equations and then sharing information about transactions and ownership.

Since its inception, bitcoin has been the subject of both fascination and controversy. While some view it as a path toward a more open financial system, others say the tokens enable illicit money transfers and could destabilize the economy.

An early wave of venture-capital investment into bitcoin ebbed this year, with most new investment going into systems that borrow bitcoin’s features to make existing financial services, like wire payments or stock trading, work more efficiently.

Away from the spotlight, a series of developments have helped bitcoin recover momentum lost in scandals that included hacked exchanges, fights among coders, and crash-and-burn price swings. Bitcoin advocates are working to make transactions speedier, and recently creation of new bitcoin slowed according to a preset schedule, making it harder to satisfy growing demand.

Vinny Lingham, chief executive of fraud-protection startup Civic Technologies Inc., earlier this year predicted a rise in bitcoin to $1,000 from about $400. Among other factors, Mr. Lingham forecast that worries about traditional currencies would increase bitcoin’s appeal as a hedge.

The surge has led some big companies to take notice. When people started complaining on Twitter this month that Airbnb Inc. didn’t accept bitcoin as payment, CEO Brian Chesky responded: “Wow, didn’t realize this.” The home-sharing service is now exploring taking bitcoin as payment, according to the company.

Some discount the gains by noting that bitcoin is still relatively thinly traded compared with other major currencies. “It doesn’t take much to move the needle,” said Michael Moro, CEO of Genesis Global Trading Inc., which handles off-exchange bitcoin deals.

More than 98% of daily bitcoin trading on exchanges is done in China, according to tracking website Crypto Compare.

“The moment there’s a downtick in the yuan, there’s a lot of buying of bitcoin,” said Tuur Demeester, editor in chief at Adamant Research, which focuses on cryptocurrencies.

Despite the rally, the volatility of bitcoin overall has lessened. Eli Dourado, an economist at George Mason University’s Mercatus Center, calculates that bitcoin volatility has dropped by nearly 90% since its peak in 2013 and is now nearly on-par with gold and major currencies. Backers say that dynamic is drawing more traders while reflecting wider ownership than the previous rally to $1,000.