Why Bitcoin smashed through $8,000 and kept going
21st November 2017 11:57
Bitcoin has hit yet another all-time high, hurtling past $8,000 to claim $8,260, a little over a week after touching a near-term low of around $5,600.
The cryptocurrency has gained 700% since the beginning of the year and could be on target for a $10,000 finish for 2017 if momentum continues.
After Monday's high the price briefly fell by $500 on the news of a hack of the Tether coin to the tune of $30 million.
That particular coin has nothing to do with bitcoin as such but it is pegged to the US dollar and is used by traders and others to get out of the market on exchanges that don't convert crypto to fiat or to transfer funds between exchanges.
The administrators of the centrally issued coin froze the funds and blacklisted the address associated with the hack.
The latest bitcoin spurt is a reinforcement of the 'buy the dips' trend that has seen bitcoin stake out higher highs in response to pull backs. Although it could be taken as further indication of irrational exuberance, there are fundamentals at play behind the recent price appreciation.
First, there was the news that traders on the LedgerX platform agreed a price of $10,000 for the first year-long bitcoin futures contract, which has served to put a floor under the price.
If the contract finishes above $10,000 in a year's time, then the contract owner will be in the money on 28 December 2018 when they exercise their option to buy. LedgerX has taken in $16 million in business on its bitcoin futures contracts since 20 October when it started trading the instrument.
Also, despite warnings from some quarters, bitcoin futures could launch as soon as the second week in December on the much larger Chicago Mercantile Exchange, according to CME chairman Terry Duffy.
However, a notice posted on CME's site stating the contract would go live on 11 December has been removed and the exchange has not yet filed its bitcoin futures proposal with the US derivatives markets regulator, the Commodity Futures Trading Commission.
More favourable mood music was evident at Coinbase, thought to be the largest holder of bitcoin in the world, when Brian Armstrong, the chief executive of the exchange, wrote in a blog post that $10 billion of institutional money was on the sidelines waiting to enter the sector, and his company was positioning to provide the custody and management services these companies will require.
Another factor moving the needle was payments startup Square announcing last week that it had initiated buying and selling of bitcoin by a select number of users on its Square Cash app, as it tests the currency on its systems before a wider launch.
saw that as beneficial for bitcoin in helping it gain mainstream legitimacy as well as contributing to Square's bottom line.
The bank's analysts noted:"While we are positive on SQ's strategy, to the extent it confers legitimacy on Bitcoin and prompts adoption by other providers (i.e., ) the biggest beneficiary may be the crypto-asset industry."
The attempt to keep the SegWit2x fork alive may have prompted some buying running into the weekend in the expectation of another bitcoin clone and the 'free' money that comes with it, but the developers behind the move failed at the first hurdle because of buggy code.
Conversely, that might have been viewed as a favourable factor by others in that it removed a source of uncertainty, at least temporarily.
Meanwhile, thinks the upside potential of bitcoin is limited precisely because of what is meant to be its chief innovation: its lack of a centralized lender of last resort in the shape of a central bank.
The French bank thinks tougher regulation is only a matter of time."The potential threat to central bank seigniorage [the way governments make money from their monopoly over issuing currency], worries about money laundering, financial stability, tax avoidance and crime, all make regulatory moves elsewhere possible."
Interestingly, given the accepted wisdom in the financial community and elsewhere that bitcoin is in a bubble, the bank astutely observed that "just because there is a bubble does not mean that the bubble will burst soon".
However, bitcoin's current run may not have much further to go judging by trading volumes. At its low on 12 November, daily trading volumes had surged above $8 million but have fallen back since at just above $3 million.
Among the smaller coins of the premier league, there was also good news for investors. Ethereum is now trading at $361 as it sets its sights on a climb back to its all-time high of $386 at the beginning of September.
Neo, the token of the Chinese blockchain platform of the same name, raced up to $44 on rumours the Chinese government was going to do an about turn on initial coin offerings by allowing them to take place, but with the proviso that they could only be conducted on the Neo platform.
There has been no news confirming the rumours as fact. Nevertheless, the buzz led to a near 50% increase in the value of Neo, which a week or so ago was commanding a price of $26.
And Monero, the "secure, private and untraceable" cryptocurrency, is making great strides too, currently trading at $134, which makes it the ninth-largest cryptocurrency, with a market capitalization of $2 billion.
As cryptocurrencies continue to march higher, the energy consumed by bitcoin has again garnered attention because of its perceived wastefulness. The bitcoin network now uses annually as much energy as Nigeria does in a year. Put another way, each transfer of a bitcoin on the network is equivalent to the daily electricity usage of an average US household.
Against that background, the recently ended initial coin offering by Hydrominer (hydrominer.org) might be one way to reduce the environmental footprint of bitcoin.
The startup is already using one hydro power station in Austria to mine bitcoin and is equipping another.
It has just raised $3,142,632, which it will be using to bring its mining rigs to more of Austria's plentiful supply of hydro stations.
The token (H2O) will be available for purchase again early next year in a 'continuous sale' to allow investors to buy mining capacity.
Each token has a claim on the mining profits generated by the venture and as such pays a dividend.
The H2O token will also become a tradeable asset in a similar fashion to other altcoins. The low cost of hydro-electricity puts the Hydrominer operation on a level playing field with miners in China, where electricity costs are much lower than the average in, for example, Europe, the US and Japan.
For those worried about the possibility of a sudden bitcoin price collapse and the ensuing panic as everyone rushes for the door at the same time, a survey by LendEdu, the US student loans provider, might provide some succor.
In its survey of 564 American bitcoin investors it found that 67% had not sold any of their bitcoin since investing, which suggests there are a lot of long-term investors who will hold through the ups and downs.
It also found that 39.5% of respondents intended to hold for at least one to three years. LendEdu asked at what price investors would sell their bitcoin and the average of the answers it received was a staggering $196,165.
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
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