In an era of low yields, bitcoin is drawing lots of investors: It has surged more than fivefold this year. And as the cryptocurrency tops the $5,000 mark, it seems increasingly impervious to bad news
Bitcoin smashed through the $5,000 (U.S.) barrier for the first time on Thursday, jumping about 8 per cent on the day as investors shrugged off the latest warnings on the risks of buying into the booming cryptocurrency market.
Bitcoin, the biggest and bestknown cryptocurrency, has chalked up a more than fivefold increase in price this year.
Typically for bitcoin, which at less than nine years old is still highly volatile and illiquid compared with traditional currencies and assets, the precise reason for its recent tear was unclear.
Approaching splits in its software, reports that Goldman Sachs is considering offering bitcoin trading, rumours that China could ease restrictions and even a political crisis in Spain’s Catalonia region were all cited by market-watchers as reasons for the rally.
But the main factor could simply be demand from investors wanting “in” on a market that has provided gains exceeding those of any other currency in every year bar one since 2010.
“People are just wanting to be part of it,” said Ryan Nettles, head of foreign-exchange trading and market strategy at Swiss bank Swissquote, which launched bitcoin trading two months ago. Mr. Nettles said interest had been much higher than anticipated and has come from banks, hedge funds and brokers.
“The interest really stems from the media hype,” he added.
On Wednesday, Russian President Vladimir Putin warned of the “serious risks” surrounding the nascent market, while Russia’s central bank said it would ban cryptocurrency trading websites. But that was not enough to put investors off, with bitcoin rallying around 10 per cent since then.
Data released last week from SEMrush, a search engine data analytics firm, found the price had a 91-per-cent correlation with Google searches on bitcoin, suggesting that all news – whether negative or positive – drives up demand, even if bad news can have a temporary negative effect.
Bitcoin almost reached $5,000 at the start of September, but fell back sharply after the head of JPMorgan Chase blasted the cryptocurrency as a “fraud” and as China forced exchanges to close down, sparking fears of a broader crackdown.
But after dipping below $3,000 in mid-September, bitcoin has leapt in value by more than 75 per cent in four weeks.
By 4 p.m. ET, bitcoin was trading up 8 per cent on the day around $5,300 on Luxembourgbased exchange Bitstamp.
Although there have been many warnings about a bitcoin “bubble,” including from European Central Bank deputy Governor Vitor Constancio, some say it has much further to climb. But determining its value is difficult.
“For most currencies, there are several accepted methodologies for estimating relative value, normally based on macroeconomic fundamentals,” EFG Asset Management’s global head of research Daniel Murray said. “For bitcoin, no such fundamentals exist.”
Other cryptocurrencies – whose prices tend to be highly correlated to bitcoin – also rallied. Their total value – or market capitalization – climbed above $160-billion for the first time since early September, according to industry website Coinmarketcap.com.
Two approaching “forks” in the bitcoin software code, which will create rival clones of the cryptocurrency, were seen by some as a reason for the rise in price, which saw a boost after the “Bitcoin Cash” clone was created at the start of August.
“Investors are seeing the lessons of history in the up-andcoming forks and hoping for an extra dividend,” said Charles Hayter, co-founder of data analysis website Cryptocompare, adding that rumours on online forums that China could reopen exchanges could also be affecting the price.