Bitcoin’s wildest rise yet: 40% in 40 Hours
BITCOIN mania reached new highs on Thursday as the price of the digital currency jumped about 40% in 40 hours, smashing through five separate US$1,000-barriers and surging past US$16,000.
At one point on Thursday, the price briefly jumped above US$19,000 on some exchanges, before quickly retreating. At 5 pm in New York, bitcoin was trading at US$16,109, up 17% for the day, before it bounced above US$17,000 again in evening trading.
Even for bitcoin, which is notoriously volatile, the upward lurch was jarring, astounding outsiders and thrilling those who have piled into the digital currency in recent weeks. The rally has been sparked by the collision of bitcoin’s sudden faddish reputation and the anticipation of institutional investors entering the market for the currency for the first time.
“They are on the main stage now,” said Charles Hayter, the CEO of research firm CryptoCompare.
Bitcoin crossed the US$15,000 milestone on Thursday just shy of 6 am New York time and a few hours later surpassed US$16,000. This was about 40 hours after it first crossed the $12,000 mark.
The most recent moves brought bitcoin’s year-to-date gain to about 1,560%. For many sceptics, though, that is proof that bitcoin is a massive bubble.
“It’s clear that people are putting money in simply because they think other people are going to put in money,” said Tim Swanson, the founder and research director at Post Oak Labs, a San Francisco advisory firm. “We’re seeing the actual illustration of speculation. Somebody should take a snapshot of this and put it in the dictionary.”
The gains were even causing alarm among some bitcoin proponents. “I’m 90% certain this is a bubble,” said Stephen Pair, the CEO of BitPay, a firm that facilitates bitcoin payments for businesses. “I just don’t know if it reverses itself at US$20,000 or US$100,000.”
Even though he was anxious about the gains, Pair said he was also seeing growth at his own firm. BitPay’s revenue has quadrupled this year, he said, and the firm this week announced a US$30mil fundraising round to help manage the growth.
Still, Pair said he wasn’t sure what was pushing the price up so dramatically right now. “It’s not something we are necessarily happy about,” he said. “I don’t like this crazy unsustainable volatility.”
Neither do some big banks. Many are balking at offering customers access to derivatives that will be based on bitcoin, largely because of the currency’s volatility.
Plenty of investors aren’t scared off, though. Bitcoin’s momentum has drawn in new buyers, many of whom are regular folks attracted by talk of huge gains.
“Two of my members bought houses” with the money they have made from bitcoin this year, said Brian Hoffman, the CEO of OpenBazaar, an online retail site that uses bitcoin.
“When you’ve got friends and family buying cars and buying houses, it becomes very enticing to get in.”
Daily trading volumes have been above 400,000 for most of the past week, well above an average of about 250,000 for much of the year, according to cryptocurrency ser- vices firm Blockchain.info.
Wednesday and Thursday’s gains were so stunning they had bitcoin specialists struggling to explain them. Sheer momentum remains the biggest driver to many.
Beyond this, there are some internal developments related to bitcoin. One was the release on Wednesday of a software programme called Lightning Network that is designed to increase bitcoin’s transaction capacity, something that has been limited. That could help increase the flow of bitcoin trading.
Another is the looming launch of bitcoin futures by CME Group and Cboe Global Markets . CBOE 0.63% Trading of these contracts, expected within the next two weeks, holds the promise of bringing more institutional investors into the bitcoin market because it would allow them to hedge their exposures and bet against the price of the currency.
Currently, it is difficult to make such wagers or protect holdings of bitcoin from price swings. This has kept many bigger investors out of the bitcoin market.
And then there were explanations that sound silly, but underscore the mania surrounding bitcoin: an online game called CryptoKitties.
Launched over the weekend, this online game allows players to bid for computer-generated images of cats. Bids are made using ethereum, a virtual currency similar to bitcoin.
While the game seems insignificant, OpenBazaar’s Hoffman said it quickly went viral and could be construed as one of the first mainstream applications of cryptocurrencies. CryptoKitties said the highest bid topped US$100,000.
“Within my team, nobody is talking about anything else,” Mr. Hoffman said.
No matter how crazy an explanation sounds, anything that indicates the bitcoin network may be able to reach a larger scale in terms of capacity and utility is viewed as a positive for the currency and its price.
Meanwhile, bitcoin is also entering new markets. A year ago, Japan and South Korea were minor in terms of bitcoin transaction volume. Now, Japan alone comprises about 60% of all bitcoin trading.
South Koreans have also rushed into bitcoin, pushing the price on exchanges in that country even higher than on US ones. On Bithumb, the largest exchange in Korea, bitcoin on Friday morning in Seoul was trading at US$20,280, well above where it was trading in the US.
Traders say the younger generation in Korea is playing a prominent role in driving the price higher there.
“Koreans have been more comfortable with technology and digital assets for longer than most,” said Arthur Hayes, founder and chief executive of BitMEX, a bitcoin-derivatives exchange in Hong Kong. “It’s a cultural thing that’s much more apparent than in Western countries.”
Such interest is growing despite questions about just how bitcoin works and security issues around it.
Bitcoin’s price, for example, shrugged off news on Wednesday of the theft of nearly US$70mil worth of bitcoin from a cryptocurrency-mining service called NiceHash following a security breach. The theft caused the company to halt operations for at least 24 hours.