Bit­coin soars then falls back; banks raise risk con­cerns

The Trentonian (Trenton, NJ) - - BUSINESS - By Ken Sweet

NEW YORK » The price of bit­coin swung wildly Thurs­day, ris­ing to more than $19,000 only to fall sharply within min­utes, as both the eu­pho­ria and anx­i­ety sur­round­ing the vir­tual cur­rency es­ca­lated just days be­fore it starts trad­ing on a ma­jor U.S. ex­change.

At 3:25 p.m. EST, bit­coin was val­ued at $15,930, ac­cord­ing to Coin­base, af­ter briefly surg­ing above $19,000 Thurs­day morn­ing. At the start of the year, one bit­coin was worth less than $1,000.

The swings in price oc­curred as the trad­ing com­mu­nity pre­pares for bit­coin to start trad­ing on two es­tab­lished U.S. ex­changes. Fu­tures for bit­coin will start trad­ing on the Chicago Board Op­tions Ex­change on Sun­day evening and on the Chicago Mer­can­tile Ex­change a week later.

Yet the on­set of fu­tures trad­ing has parts of Wall Street con­cerned. A group of banks came out and com­plained that fed­eral reg­u­la­tors ap­proved the fu­tures, which be­gin trad­ing on Sun­day, too quickly and with­out prop­erly con­sid­er­ing the risks in­her­ent in bit­coin.

The fu­tures sig­nal more main­stream ac­cep­tance of the cur­rency, but also open up bit­coin to ad­di­tional mar­ket forces. Fu­tures al­low for the short­ing of bit­coin — that is bet­ting that the price of bit­coin will go down — which presently is very dif­fi­cult to near im­pos­si­ble to do. With the cur­rency’s tremen­dous run up in price in re­cent days, it could be­come a tar­get for those who doubt that it de­serves its cur­rent lofty value.

The Fu­tures In­dus­try As­so­ci­a­tion, which rep­re­sents Wall Street’s big­gest banks and clear­ing­houses, sent a let­ter to the Com­modi­ties Fu­tures Trad­ing Com­mis­sion, say­ing that as the guar­an­tors of cus­tomers’ trades, they should have been con­sulted be­fore trad­ing in bit­coin fu­tures was ap­proved. They ex­pressed con­cern that the ex­treme volatil­ity tied into bit­coin could leave clear­ing­houses ex­posed when the fu­tures move too vi­o­lently.

The frenzy of in­ter­est and the rapid rise in the price of bit­coin has put sig­nif­i­cant strain on the ma­jor bit­coin ex­changes. Coin­base, the largest bit­coin ex­change, at one point tweeted that record­high traf­fic had caused in­ter­rup­tions to its ser­vice. Bitfinex, which trades sev­eral dig­i­tal cur­ren­cies in­clud­ing Bit­coin, tweeted out that it had suf­fered an un­usual surge in traf­fic the last few days.

Bit­coin is the world’s most pop­u­lar vir­tual cur­rency. Such cur­ren­cies are not tied to a bank or gov­ern­ment and al­low users to spend money anony­mously. They are ba­si­cally lines of com­puter code that are dig­i­tally signed each time they are traded.

A de­bate is rag­ing on the mer­its of such cur­ren­cies. Some say they serve merely to fa­cil­i­tate money laun­der­ing and il­licit, anony­mous pay­ments. Oth­ers say they can be help­ful meth­ods of pay­ment, such as in cri­sis sit­u­a­tions where na­tional cur­ren­cies have col­lapsed.

Min­ers of bit­coins and other vir­tual cur­ren­cies help keep the sys­tems honest by hav­ing their com­put­ers keep a global run­ning tally of trans­ac­tions. That pre­vents cheaters from spend­ing the same dig­i­tal coin twice.

On­line se­cu­rity is a vi­tal con­cern for such deal­ings.

In Ja­pan, fol­low­ing the failure of a bit­coin ex­change called Mt. Gox, new laws were en­acted to reg­u­late bit­coin and other vir­tual cur­ren­cies. Mt. Gox shut down in Fe­bru­ary 2014, say­ing it lost about 850,000 bit­coins, pos­si­bly to hack­ers.


A bit­coin logo is dis­played at the In­side Bit­coins con­fer­ence and trade show in New York. The bit­coin miner NiceHash says it is in­ves­ti­gat­ing a se­cu­rity breach and the theft of the con­tents of the NiceHash “bit­coin wal­let.” The com­pany said Thurs­day in a state­ment posted on its web­site that it had stopped op­er­a­tions and was work­ing to ver­ify how many bit­coins were taken.

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