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Bitcoin zoomed past 11,000 US dollars to hit a record high for the sixth day in a row on Wednesday after gaining more than 1,000 US dollars in just 12 hours, stoking concerns that a rapidly swelling bubble could be set to burst in spectacular fashion.
After soaring more than 1,000 percent since the start of the year, Bitcoin rose as much as 15 percent on Wednesday, but by mid-afternoon the virtual currency was trading at 9,500 US dollars, down 3.7 percent on the day on Luxembourg-based Bitstamp BTC=BTSP, one of the largest and most liquid cryptocurrency exchanges.
“As many seasoned traders know all too well, anything that rockets higher, tends to fall down faster when the time comes, and the time will come,” James Hughes, chief market analyst at FX broker AxiTrader, said.
Bitcoin topped 10,000 US dollars for the first time in early Asia trading, before surging above 11,000 US dollars less than 12 hours later to reach 11,395 US dollars.
Bitcoin’s rapid ascent has led to countless warnings that it has reached bubble territory. But the warnings have had little effect, with dozens of new crypto-hedge funds entering the market and retail investors piling in.
The evidence suggests that few of the users are buying Bitcoin to use it as a means of exchange, but are speculating to increase their capital.
“What’s happening right now has nothing to do with Bitcoin’s functionality as a currency – this is pure mania that’s taken hold,” said Garrick Hileman, a research fellow at the University of Cambridge’s Judge Business School.
“There’s always the possibility that some fundamental cryptographic flaw that we can’t solve craters the whole space, or that regulators unite and decide this represents systemic risk and actually could trigger the next financial crisis,” he said.
“Exit ramps”
Skeptics say it is a classic speculative bubble with no relation to real financial market activity or the economy - most famously JPMorgan boss Jamie Dimon, who labelled it a “fraud.”
But even Dimon and others who say Bitcoin represents a bubble – now the consensus view among mainstream investors – do not deny its price rise could still have further to go.
“It’s got all the shapings of your tulip bubble chart (but) that tells you nothing about where that price line could go depending on the number of people who wish to own it,” Standard Life’s head of investment strategy, Andrew Milligan, said on Wednesday. “Who is to say it doesn’t reach 100,000 US dollars?”
In some emerging markets, Bitcoin had hit well over 10,000 US dollars previously.
In South Korean exchanges, too, Bitcoin was already close to 11,000 US dollars or higher early this week. On Zimbabwe’s local exchange golix.com, Bitcoin touched a new high of 18,500 US dollars on Wednesday before retreating to 18,000 US dollars.
(REUTERS)
