Dream run for Bitcoin, but will the buzz last?
paris — Bitcoin may be in for a sustained record run as it overcomes key obstacles, experts said after the cryptocurrency set a new record high.
Even bitcoin fans were plagued by doubts over the summer when Chinese regulators cracked down on exchanges trading the virtual currency and a dispute among developers gave birth to a new version, splitting the market of the budding currency.
In September, banking regulators in Beijing and Shanghai ordered local cryptocurrency exchanges to shut down.
But observers say they are now detecting a rethink by the Chinese authorities, causing bitcoin to surge past the $5,800 level for the first time since its launch eight years ago. Should rumours reported in state media be confirmed, then what is by far the most well-known and traded of more than 1,000 so-called cryptocurrencies could soar to even greater heights, experts predict.
There has been a period of uncertainty but that has not lasted. China represents more than 60 per cent of trading and the question of their regulation, as everywhere, has made a bigger impact
Greg Revenu, Bryan, Garnier & Co
“There has been a period of uncertainty but that has not lasted. China represents more than 60 percent of trading and the question of their regulation, as everywhere, has made a bigger impact,” said Greg Revenu, of Bryan, Garnier & Co.
The virtual currency is created through blockchain technology, which publicly records transaction details including the unique alphanumeric strings that identify buyers and sellers — technology which is gaining increasing currency among banks and companies. —
LONDON — Bitcoin bubble or just the beginning? Or both? Those are the questions being asked on Wall Street to Main Street after the digital currency breached $5,000 for the first time, pushing this year’s gains to more than fivefold.
As recently as December, bitcoin was trading at less than $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 & Co 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 Group’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, a trading platform. “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 tumbled below $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 publicised 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 $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 bigname investors like Mark Cuban
It’s a very speculative market. It’s going to be a very volatile asset for a long time Jon Moulton, Private equity veteran who owns bitcoins
and Mike Novogratz said they’re investing in the sector.
Novogratz, who is starting a $500 million cryptocurrency fund, said this week he believes the price will double to $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 UK-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.”
“Mining” the coins is a very profitable but long, expensive, and energy-intensive process requiring powerful servers.
Between 60 and 70 per cent of new bitcoins are mined in China, where the local leader Bitmain has imposing infrastructure. The bitcoin supply is capped at 21 million units, some 17 million of which have already been mined.
Beijing’s crackdown saw bitcoin’s price plunge some 40 per cent before recovering, the latest move in its rollercoaster existence which began in 2009, when it was worth just a handful of cents.
Even at the start of this year it was worth ‘only’ $966.
Its volatility has led many financial observers to suggest the current bull run is another speculative bubble which could well lead to a corrective selloff.
Two Chinese trading platforms, Okcoin and BTC China, control about 22 per cent of the global bitcoin market.
Bitcoin is not generally recognised as a currency — lacking a home country, central bank or treasury — although its real world use is constantly increasing.
Another key player in the crypto currency is Russia, where President Vladimir Putin on Wednesday spoke of a “risk” that virtual currencies — often associated with socalled anonymous ‘dark web’ dealings — could represent.
For Jonathan Gerardin, IT manager at Wavestone, “the summer was marked by different crises”.
Gerardin noted that the currency split, coupled with China’s crackdown, had dampened enthusiasm but “bitcoin has been able to overcome that and continue to progress, it has shown its resilience”.
The rising use of blockchain — a theoretically unhackable digital ledger technology — is also viewed as keeping the digital cash’s value buoyant, according to Revenu.
“Its value is totally marginal in the face of potential uses being put in place,” he said. — Bloomberg /AFP