Volatility marks Bitcoin’s wild ride

Currency sees growth, hurdles

Bitcoin marked its eighth birthday this week with a wild, roller coaster ride that saw the cryptocurrency’s price surge past US$1,000 and set a new record high before diving more than 20 per cent in a matter of hours the following day.

Yet, despite this flurry of activity in the virtual world, it remained business as usual at a Bitcoin ATM in a Cash Shop on Toronto’s Yonge Street.

“There are four, five people every day” using the machine, and that hasn’t wavered, says Mukesh Bali, manager of the store where the InstaCoin ATM was installed six months ago. “It’s a normal routine.”

Since it was first created by a mysterious programmer going by the name of Satoshi Nakamoto, the cryptocurrency has garnered greater consumer awareness and seen exponential growth in its market capitalization, with millions of Bitcoin now available on the network.

But everyday economic use still only accounts for a fraction of its price moves, says Gil Luria, director of research at Wedbush Securities.

“Sending someone money, using Bitcoin to buy something online, in my mind that explains 10 per cent of the value right now,” he said in a phone interview from Los Angeles. “Ninety per cent of the value is the fact that people expect there to be many multiples more real economic activity in the future.”

That speculative side has fuelled volatility since the currency’s birth in 2009.

In the wake of the global financial crisis, the concept of a decentralized, digital currency appealed to enough people to drive Bitcoin’s price to a then-record US$$1,137 in November 2013, according to Bloomberg data. Just months later, its upward trajectory was halted when Mt. Gox, once the world’s biggest bitcoin exchange, filed for bankruptcy. By January 2015, Bitcoin had slipped to US$183.07 and would hover at those depths for months. Meanwhile, interest simmered. There was attention from major banks and companies, and a wave of investment in startups based on the currency and the blockchain technology behind it.

In September 2015, Bitcoin began to slowly gain again. And over the course of 2016 it soared roughly 120 per cent to hit US$952.01.

On Tuesday, the first trading day of 2017, the cryptocurrency again surpassed the US$1,000 threshold on its way to Wednesday’s all-time high of US$1,161.89.

The latest rally has been driven in part by global uncertainty and the cryptocurrency’s growing appeal, particularly in China, and other countries such as Venezuela and India where traditional currencies are facing more restrictions.

“Concerns about increased capital control for Chinese citizens may have contributed to more Chinese buying bitcoin in order to get money out of the country, or some people speculating about those restrictions,” Luria said.

Even at prices in the three-digit range, the market capitalization of Bitcoin remains far higher than it was during the peak of 2013, says Luria.