Bitcoin breaks through $10,000 as appeal grows

Moves to bring cryptocurrency into mainstream financial system fuels sharp price rise

It has been branded “a fraud” by its critics, and its sharp price rise during 2017 has been likened to the 17th century tulip craze. But love it or hate it, bitcoin has defied naysayers and delighted proponents by breaking through the $10,000 price barrier - a more than tenfold increase in value over the course of this year.

The semi-anonymous cryptocurrency, which was launched in 2009 by an anonymous developer, now has a market capitalisation of $171bn. While bitcoin has in past ridden a cycle of boom and then bust, 2017 has seen its price skyrocket.

Bitcoin was worth just under $1,000 at the start of the year, but public enthusiasm and moves to bring the cryptocurrency into the mainstream financial system have driven up its price.

On Wednesday morning in Asia bitcoin rose as far as $10,379 before easing a bit to $10,240 at midday in Hong Kong.


Bitcoin futures

CME Group, the US exchange operator, last month announced plans to roll out bitcoin futures, subject to regulatory approval. This would allow Wall Street - much of which has been unable to dabble in bitcoin due to a lack of infrastructure and financial products - to speculate on bitcoin as on other commodities such as gold.

Meanwhile on the retail front, spread betters have been allowing small investors to bet on the volatile cryptocurrency. But this has led to worries that some traditional marketplaces could becoming overly exposed.

Bitcoin is still relatively illiquid, prone to price swings, and defined differently by different regulators - factors that discourage bears from buying into the nascent asset. Furthermore, the infrastructure supporting bitcoin is still prone to hacks and other issues.

Dark web links

Buying and storing bitcoin long has been seen as technically challenging. So a move by Square, the fintech company led by Twitter co-founder Jack Dorsey, to give a test group of customers the ability to buy bitcoin through its Cash app earlier in November was greeted with enthusiasm.

While bitcoin may have emerged as the preserve of rebels, originally popular with people buying drugs on the dark web, the technology that it pioneered - known as blockchain - has been embraced by many mainstream businesses from banks to shipping companies.

These companies are betting that distributed ledger systems, which allow all participants on the network to see every single transaction, will help to improve efficiency and solve difficult problems such as tracking food through a supply chain.

Not all good for bitcoin

Bitcoin cannot be used widely to buy goods and services; many say they now see it as a way to store value. But companies such as Overstock, led by long-term bitcoin enthusiast Patrick Byrne, allow customers to use the cryptocurrency to make purchases.

Nevertheless, this year hasn't all been good for bitcoin. In September China said it would clamp down on digital currencies, sparking concern that the world's biggest market might be off limits.

And disagreements between bitcoin developers have risked a new “fork” in the cryptocurrency, creating rancour in the close-knit community.

– Copyright The Financial Times Limited 2017