The price of bitcoin has soared to its highest level in a year and a half, as a breathless rally in the digital asset evokes memories of the cryptocurrency’s last boom-and-bust cycle.
In Asian trading hours on Wednesday, bitcoin traded on the Bitstamp exchange rose as much as 10 per cent to as high as $12,935.58 (€11,384), putting the digital asset on track for its biggest one-day jump in more than a month. Bitcoin’s price later pulled back to less than $12,600 as European traders came online.
Bitcoin’s value has now jumped for the past eight trading sessions in a row, bringing its overall return for the year to more than 250 per cent – more than 12 times the return of the next best-performing currency or commodity, palladium. Much of those gains have come in the past eight weeks, with the price of one bitcoin tripling since the start of May alone.
The euphoria surrounding bitcoin is sweeping up other digital currencies. Ethereum, the second-biggest cryptocurrency, was up 5.5 per cent on Wednesday, according to Coindesk, a cryptocurrency information provider, taking its gains to 150 per cent for the year.
The news comes as Jed McCaleb, creator of the now-defunct Mt. Gox cryptocurrency exchange, is to face a lawsuit for alleged fraudelent misrepresentation linked to the loss of 850,000 bitcoin, worth over $400 million at the time, in a major hacking attack in 2014.
Analysts say the new bout of enthusiasm for virtual currencies is being stoked by a confluence of factors.
Among the most significant is Facebook’s move into the world of crypto, launching its own currency called Libra in an attack by big tech on the payments industry. Analysts are optimistic that Libra could help cryptocurrencies generally gain more mainstream acceptance, both as means of payment and as a store of wealth.
"Adoption is obviously key for this space so the Facebook news is . . . being viewed positively," said Craig Erlam, senior market analyst at Oanda. Mr Erlam added that bitcoin has struggled for legitimacy among traders since the last crypto bubble burst at the end of 2017, prompting the bitcoin price to plunge about 80 per cent from its peak of more than $19,000.
But analysts caution that traders are ignoring crucial differences between Libra and more established digital currencies such as bitcoin.
"Libra is backed by a reserve of real assets – such as bank deposits and treasury bills. That gives it intrinsic value," said Margaret Yang, an analyst at CMC Markets. She noted that, in theory, that should ensure some stability in its price. Many other major cryptocurrencies, most notably bitcoin, are "backed by nothing".
Demand for cryptocurrencies is also being fanned by a recent dovish shift by the world's biggest central banks, say analysts. Both the US Federal Reserve and the European Central Bank have strongly hinted that they will tilt towards monetary easing in the coming months amid increasing signs the global economy is cooling. Meanwhile, the value of negative-yielding bonds has reached a record high of $13 trillion globally, increasing the relative appeal of yield-less assets such as gold, whose price has soared to more than $1,400 per troy ounce this week.
Unlike fiat currencies, the supply of new bitcoins is not controlled by any central bank and the number of tokens in circulation is fixed, giving it scarcity value during times of monetary expansion. “Cryptocurrency [is] scarcer in nature than traditional currency, in particular during an era of loose monetary policy,” said Ms Yang.
Geopolitical and global political unrest may also be playing a role in pushing up demand. Recent days have seen a ratcheting up in tension between the US and Iran, while an estimated two million protesters took to the streets in Hong Kong earlier in the month demanding the withdrawal of an extradition bill.
“Bitcoin is independent of governments and financial institutions, so the more you see an erosion of trust, the more the demand for bitcoin,” said Mati Greenspan, senior market analyst at eToro, a Tel Aviv-based brokerage. He noted that the local price of bitcoin had recently risen in hotspots of political turmoil, including Hong Kong and Tehran. – Copyright The Financial Times Limited 2019