National Post (Latest Edition) - - FINANCIAL POST - Camila Russo and Tugce Oz­soy in New York

Bit­coin bub­ble or just the be­gin­ning? Or both? Those are t he quest i ons be­ing asked on Wall Street to Main Street af­ter the dig­i­tal cur­rency breached US$5,000 for the first time, push­ing this year’s gains to more than five­fold.

As r ecently as De­cem­ber, bit­coin was trad­ing at less than US$ 1,000. Since then, it has dodged ev­ery­thing from tight­en­ing reg­u­la­tions, feud­ing fac­tions split­ting its un­der­ly­ing blockchain and warn­ings from the likes of JPMor­gan Chase chief ex­ec­u­tive Jamie Di­mon of fraud and an even­tual price col­lapse.

The lat­est leg higher is be­ing driven in part by in­creas­ing in­sti­tu­tional in­ter­est, with ev­ery­one from Gold­man Sachs’s Lloyd Blank­fein to Di­mon say­ing they’re now open to ways to get in­volved. The change of heart comes amid grow­ing op­ti­mism about the blockchain tech­nol­ogy.

“This record is an ex­cit­ing mile­stone and sign of mar­ket con­fi­dence in the out­look for bit­coin and the un­der­ly­ing tech­nol­ogy,” said Iqbal Gand­ham, a man­ag­ing di­rec­tor at eToro. “We ex­pect many more mile­stones like this to come.”

In­ter­est is grow­ing by the day, as mea­sured by searches on the In­ter­net. SEMrush, a data an­a­lyt­ics firm, found the price had a 96 per cent cor­re­la­tion with Google searches on bit­coin, sug­gest­ing that grow­ing in­ter­est in the cryp­tocur­rency is help­ing to drive de­mand.

Bit­coin t u mbl e d be­low US$4,000 last month af­ter China’s cen­tral bank banned ini­tial coin of­fer­ings and or­dered all cryp­tocur­rency ex­changes to close. Re­ports that the Chi­nese govern­ment will ease those reg­u­la­tions is also help­ing the price.

A ro­ta­tion out of dig­i­tal to­kens sold in ini­tial coin of­fer­ings and into bit­coin is pro­vid­ing an ad­di­tional boost. In­vestors are be­com­ing in­creas­ingly wary as projects with lit­tle sub­stance have mush­roomed, and as hacks and tech­ni­cal is­sues have caused some to lose thou­sands. There’s a Wu-Tang Coin with the sole pur­pose of buy­ing and re­leas­ing the Wu-Tang Clan al­bum bought by fraud­ster Martin Shkreli, while Paris Hil­ton and Floyd May­weather pub­li­cized their ICO in­vest­ments on so­cial me­dia. Bit­coin is seen as a crypto-safe haven next to many of th­ese to­kens.

“Ev­ery­one seemed to agree that once it broke through US$ 5,000, the sky is the limit. I wouldn’t be sur­prised to see it dou­ble from here in a very short space of time,” said Ben Ku­mar, a money man­ager at Seven In­vest­ment in Lon­don, who in­vests in bit­coin in an in­di­vid­ual ca­pac­ity. “There’s a long time to run be­fore peo­ple get tired of chas­ing the next big thing.”

Bit­coin isn’t the only one to ben­e­fit as lately it seems that shares of any com­pany with even an in­di­rect link to the cryp­tocur­rency space is bound to rally. Over­stock. com soared af­ter an­nounc­ing a reg­u­lated dig­i­tal to­kens ex­change, while Gold­money climbed af­ter say­ing it will of­fer its clients the abil­ity to trade and store bit­coin and ri­val dig­i­tal cur­rency ether.

In June, Nvidia and Ad­vanced Mi­cro De­vices, which make hard­ware used in cryp­tocur­rency min­ing, ral­lied as ether surged to a record. Biop­tix’s stock nearly dou­bled in the days lead­ing up to the com­pany’s an­nounce­ment that it’s re­nam­ing it­self Riot Blockchain.

Bit­coin’s rally and the pro­lif­er­a­tion of other dig­i­tal as­sets is at­tract­ing the wary eyes of reg­u­la­tors glob­ally. China and South Korea banned ICOs, while Rus­sian Pres­i­dent Vladimir Putin this week called for reg­u­la­tion of the sec­tor. At least 13 other coun­tries have im­posed new rules or an­nounced plans to tighten reg­u­la­tions.

The dig­i­tal cur­rency’s surge has di­vided the fi­nan­cial com­mu­nity between those con­vinced it is a bub­ble on the verge of pop­ping, like bil­lion­aire hedge fund man­ager Ray Dalio said, while other big- name in­vestors like Mark Cuban and Mike Novo­gratz said they’re in­vest­ing in the sec­tor.

Novo­gratz, who is start­ing a US$ 500 mil­lion cryp­tocur­rency fund, said this week he be­lieves the price will dou­ble to US$10,000 in less than a year. The road is sure to be rocky, as bit­coin’s volatil­ity is still 10 times that of gold.

“It’s a very spec­u­la­tive mar­ket,” Jon Moul­ton, a U.K.-based pri­vate eq­uity vet­eran who owns bit­coins, said in an in­ter­view with Bloomberg TV’s Francine Lac­qua. “It’s go­ing to be a very volatile as­set for a long time.”


As re­cently as De­cem­ber, bit­coin was trad­ing at less than US$1,000. Since then, it has dodged ev­ery­thing from tight­en­ing reg­u­la­tions, feud­ing fac­tions and warn­ings from the likes of JPMor­gan Chase chief ex­ec­u­tive Jamie Di­mon of fraud.

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