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

The Globe and Mail (Prairie Edition) - - REPORT ON BUSINESS - JEMIMA KELLY

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 Coin­mar­ket­

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.

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