Brokers worry about cryptocurrency’s fast rise as millions of dollars’ worth were stolen,
Breach valued at $70 million fuels security concerns ahead of cryptocurrency’s U.S. trade
Bitcoin surged past $16,000 (U.S.) for the first time on Thursday, with frenzied demand to trade the cryptocurrency buckling one of the largest exchanges just days before the first U.S. futures contracts begin trading.
Bitcoin’s rally of more than $3,000 in the past 24 hours continues to defy its legions of skeptics, as mainstream demand for the world’s largest cryptocurrency explodes. Investors flocking to open new accounts or place orders Thursday left Coinbase, the largest U.S. exchange, warning of outages and slow transactions.
Bitcoin listed at $16,395 as of 1:15 p.m. in Bloomberg pricing that is a composite of exchanges. That takes its rally this year past 1,500 per cent and its market capitalization is now at $274 billion. On Thursday, it topped out at $16,777.08 after starting the day at $13,363.25.
“This is irrational exuberance,” Royal Bank of Scotland chairman Howard John Davies said in an interview on Bloomberg TV on Thursday. “This is a very, very unusual market, that shows we’re not in a normal two-way trading market.”
Davies agreed with the brokerages’ concerns that exchanges, which are set to offer bitcoin futures and options, have failed to get enough feedback from market participants on margin levels, trading limits, stress tests and clearing.
Those warnings were laid out in an open letter via the Futures Industry Association on Wednesday.
Daily price swings of that magnitude and weakness at the exchanges underscored concerns raised Wednesday by some of the world’s biggest brokerages, who told regulators the contracts have been rushed to market without enough due diligence. The new bitcoin derivatives products are slated to begin trading this month and are expected to boost mainstream demand. On a day such as Thursday, trading would’ve paused under proposed daily priceswing limitations.
At the same time, there are fresh concerns about the security of bitcoin and other virtual currencies after NiceHash, a company that mines bitcoins on behalf of customers, said it is investigating a breach that may have resulted in the theft of bitcoins valued at about $70 million.
Research company Coindesk said a wallet address referred to by NiceHash users indicates about 4,700 bitcoins had been stolen. NiceHash said it will stop operating for 24 hours while it verifies how many bitcoins were taken. Wallet is a nickname for an online account. There was no immediate response from NiceHash to an emailed request for more details.
“The incident has been reported to the relevant authorities and law enforcement and we are co-operating with them as a matter of urgency,” it said. The statement urged users to change their online passwords.
Slovenian police are investigating the case with authorities in other states, spokesperson Bostjan Lindav said, without providing details.
The hack occurred just 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 crosstown rival CME Group’s platforms later in the month.
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.