Bitcoin surpassed US$10,000 for the first time, taking this year’s price surge to more than 10-fold even as warnings multiply that the largest digital currency is an asset bubble.
The euphoria is bringing to the mainstream what was once considered the providence of computer developers, futurists and libertarians seeking to create an alternative to central bank-controlled monetary systems. While the actual volume of transactions conducted in cryptocurrencies is relatively small, the optimism surrounding the technology continues to drive it to new highs.
Bitcoin has risen by more than 50 per cent since October alone, after developers agreed to cancel a technology update that threatened to split the digital currency. Even as analysts disagree on whether the largest cryptocurrency by market capitalisation is truly an asset, its $167 billion value already exceeds that of about 95 per cent of the S&P 500 Index members.
“This is a bubble and there is a lot of froth. This is going to be the biggest bubble of our lifetimes,” hedge fund manager Mike Novogratz said at a cryptocurrency conference Tuesday in New York.
Mr Novogratz, who’s says he began investing in bitcoin when it was at $90, is starting a $500 million fund because of the potential for the technology to eventually transform financial markets.
There’s no agreed authority for the price of bitcoin, and quotes can vary significantly across exchanges. In Zimbabwe, where there’s a lack of confidence in the local financial system, the cryptocurrency has traded at a persistent premium over $10,000. Volumes are also difficult to assess. Bloomberg publishes a price that draws on several large bitcoin trading venues. It was at $10,166.98 as of 12:02pm Tokyo time.
From Wall Street executives to venture capitalists, observers have been weighing in, with some more sceptical than others as bitcoin’s rise has grown steeper, sweeping along individual investors. The number of accounts at Coinbase, one of the largest platforms for trading bitcoin and rival ethereum, has almost tripled to 13 million in the past year, according to Bespoke Investment Group.
In a move toward mainstream investing, CME Group has said it plans to start offering futures contract for bitcoin, which could begin trading in December. JPMorgan, the largest US bank, was weighing last week whether to help clients bet on bitcoin via the proposed futures contracts, according to a person with knowledge of the situation.
The rising profile of digital currencies even saw bitcoin feature in the Senate confirmation hearing Tuesday for Federal Reserve chairman nominee Jerome Powell, who’s a current board member. Answering a senator’s question, he said that "cryptocurrencies are something we monitor very carefully" and that at some point their volumes "could matter" for monetary policy, though not today.
The total market cap of digital currencies now sits north of $300bn, according to data on Coinmarketcap.com’s website.
For Peter Rosenstreich, the head of market strategy at online trading firm Swissquote Bank, bitcoin’s surge harks back to the surprises of the UK referendum on European Union membership and the US president Donald Trump’s election.
“We have underestimated the populist movements,” he said. “There is growing unease on how central banks and governments are managing fiat currencies. Ordinary people globally understand why a decentralised asset is the ultimate safe haven.”