Bit­coin tops $16,000 with bub­ble warn­ings

The Hamilton Spectator - - BUSINESS - ADAM SHELL

The Bit­coin gold rush ac­cel­er­ated Thurs­day, as the world’s best­known dig­i­tal cur­rency bar­relled through $14,000, $15,000 and $16,000 in an ex­tra­or­di­nary price run-up that now val­ues the cryp­tocur­rency at more than $270 bil­lion, eclips­ing the mar­ket value of Home De­pot.

Bit­coin — which many Wall Street pros claim is a spec­u­la­tive frenzy and fi­nan­cial bub­ble — has boosted the dig­i­tal cur­rency’s mar­ket value so much that it’s now worth more than 488 of the 500 U.S. com­pa­nies in the Stan­dard & Poor’s 500 stock in­dex. So only 12 com­pa­nies in the large-cap stock in­dex have mar­ket val­ues greater than Bit­coin, S&P Dow Jones In­dices data through Dec. 6 show.

Bit­coin jumped more than 25 per cent on Thurs­day, ris­ing as much as $3,325 and hit­ting an in­tra­day record of $16,569 per coin, just eight days af­ter top­ping the $10,000 mile­stone, ac­cord­ing to Coin­Desk, a Bit­coin ex­change.

For the year, Bit­coin is up more than 1,600 per cent.

The me­te­oric rise has caught the at­ten­tion of Wall Street, which mar­vels at its steep and quick rise but fears the rise will end badly.

Jim Cramer, host of CNBC’s in­vest­ment show “Mad Money,” called Bit­coin’s most re­cent spike “par­a­bolic” and com­pared it to a rocket just af­ter launch.

“It has a Cape Canaveral feel,” Cramer said Thurs­day morn­ing on the cable business chan­nel, re­fer­ring to the well-known Florida rocket launch site. “Maybe Bit­coin is go­ing to Mars. Or Jupiter.”

But there’s a grow­ing cho­rus of Bit­coin watch­ers warn­ing in­vestors to steer clear of the surg­ing cryp­tocur­rency, de­spite the lure of quick riches.

“It’s dif­fi­cult to see any­thing move as Bit­coin has and not fear a dev­as­tat­ing bub­ble burst­ing,” warned Craig Er­lam, se­nior mar­ket an­a­lyst at OANDA, a New York­based for­eign ex­change firm. “If spec­u­la­tion is play­ing as big a role in the lat­est moves as some sus­pect, then very in­ter­est­ing times may lie ahead.”

But Er­lam says Bit­coin could rise a lot more “be­fore the bub­ble bursts.”

Bit­coin back­ers view it as a cur­rency and pay­ment sys­tem of the fu­ture, as well as a new kind of in­vest­ment. They say it’s an emerg­ing al­ter­na­tive to the dol­lar, euro and yen, and an in­vest­ment like gold, stocks or bonds.

Skep­tics say Bit­coin is im­pos­si­ble to value, wildly volatile and a spec­u­la­tive play that may never gain wide­spread ac­cep­tance.

The bullish the­sis has got­ten a boost in re­cent weeks af­ter a U.S. se­cu­rity reg­u­la­tor gave the OK for op­tions ex­changes to launch Bit­coin fu­tures. The move is seen as help­ing le­git­imize Bit­coin and paving the way for greater ac­cep­tance from large in­sti­tu­tional in­vestors.

An­other plank in the bull’s case is that there will be a lim­ited num­ber — 21 mil­lion — of Bit­coins created. There are now 16.73 mil­lion in cir­cu­la­tion, ac­cord­ing to coin­mar­ket­cap.com

Bit­coin works off blockchain tech­nol­ogy, akin to an anony­mous dig­i­tal ledger that is not reg­u­lated by any gov­ern­ment or fi­nan­cial in­sti­tu­tion.

“The Bit­coin rush is not over,” Yann Que­lenn, an­a­lyst at Swis­squote Bank, an on­line bank in Switzer­land, said via email.

“Sheer greed is driving the cryp­tocur­rency higher, per­haps to $20,000 by Christ­mas,” he said.

Bit­coin is wildly volatile. Al­ready this year, it has had en­joyed six bull mar­kets (or gains of 20 per cent off of lows), and five bear mar­kets (or drops of 20 per cent from peaks). Thurs­day’s trad­ing was tur­bu­lent, with Bit­coin climb­ing more than 25 per cent to its in­tra­day peak, but then tum­bling nearly $1,700, or about 10 per cent, from its high around 12:30 p.m.

Que­lenn warns of a mas­sive hang­over af­ter the party ends.

“Bit­coin is unique in his­tory, but a (steep price) cor­rec­tion will likely be very tough,” he says.

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