Bitcoin surges above $16,000 as concerns mount
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Bitcoin flirted with $17,000 on Thursday, triggering a warning the cryptocurrency was like a “train with no brakes” and prompting fresh concern about its looming launch on mainstream markets.
Still under $14,000 in Asian trading hours, it smashed through $15,000 in European trading and got as high as $16,777 before pulling back, according to Bloomberg data. Near 2145 GMT, bitcoin stood at $16,070.
The rally came just a day after the virtual currency, which has been used to buy everything from an ice cream to a pint of beer, hit the $12,000 mark for the first time. The eye-popping rise has seen the currency’s value soar more than 50 percent in just one week, and from just $752 in mid-January.
Bitcoin — which came into being in 2009 as a bit of encrypted software — has no central bank backing it and no legal exchange rate.
It has surged dramatically in the past month, driven by growing acceptance among traditional investors of an innovation once considered the preserve of computer nerds and financial experts, and sometimes more shady users.
But some, including the U.S. Federal Reserve, have warned against dabbling in bitcoin as it could threaten financial stability, and fears of a bubble have increased as the price has soared.
“Bitcoin now seems like a charging train with no brakes,” said Shane Chanel, from Sydney-based ASR Wealth Advisers. “There is an unfathomable amount of new participants piling into the cryptocurrency market.”
But he warned: “Once the hype slows down, we will most certainly see some sort of correction.”
Financial industry concerns
There also are mounting concerns about its introduction into the mainstream financial system after a U.S. regulator last week cleared the way for bitcoin futures to trade on major exchanges, a decision which analysts say has helped spur the recent rally.
The Commodity Futures Trading Commission decision allows bitcoin derivatives to be offered on the Cboe Futures Exchange starting this weekend and on the world’s biggest futures venue, the Chicago Mercantile Exchange (CME), from December 18.
But the Futures Industry Association, which groups some of the world’s biggest derivatives brokerages, criticized the CFTC’s move in a letter to the regulator, saying contracts are being rushed through without properly weighing the risks.
“Bitcoin now seems like a charging train with no brakes,”
“A more thorough and considered process would have allowed for a robust public discussion among clearing member firms, exchanges and clearing houses,” the association said.
Bitcoin transactions happen when heavily encrypted codes are passed across a computer network.
Goldman Sachs, an FIA member, plans to clear bitcoin futures contracts for some clients, meaning it will serve as intermediary to enable transactions, a spokeswoman said.
“Given that this is a new product, as expected we are evaluating the specifications and risk attributes for the bitcoin futures contracts as part of our standard due diligence process,” she said.
The NiceHash marketplace was meanwhile on Thursday investigating a security breach resulting in the theft of bitcoin.
“Clearly, this is a matter of deep concern and we are working hard to rectify the matter in the coming days,” NiceHash said in a statement.
“In addition to undertaking our own investigation, the incident has been reported to the relevant authorities and law enforcement and we are co-operating with them as a matter of urgency.”
Bitcoin and other virtual currencies use blockchain, which records transactions that are updated in real time on an online ledger and maintained by a network of computers.
In 2014 major Tokyo-based bitcoin exchange MtGox collapsed after admitting that 850,000 coins — worth around $480 million at the time — had disappeared from its vaults.
Bitcoin’s use on the underground Silk Road website, where users could use it to buy drugs and guns, also raised suspicions about the virtual money.
Questions & Answers
Q.What is driving the recent increase in Bitcoin's value?
What is driving the recent increase in Bitcoin's value?
The dramatic surge in Bitcoin's value has been driven by increasing acceptance among traditional investors. This innovation was once considered the preserve of computer enthusiasts and financial experts, as well as more illicit users, but is now attracting wider interest.
Q.What concerns are there about Bitcoin's introduction into the mainstream financial system?
What concerns are there about Bitcoin's introduction into the mainstream financial system?
Concerns exist that contracts are being rushed through without properly weighing the risks. The Futures Industry Association criticised the CFTC's decision, stating a more thorough process would have allowed for public discussion among firms and exchanges.
Q.What is a significant historical example of security issues with Bitcoin?
What is a significant historical example of security issues with Bitcoin?
In 2014, the major Tokyo-based Bitcoin exchange MtGox collapsed after revealing that 850,000 coins, valued at about $480 million at the time, had vanished from its holdings. This incident highlights past security vulnerabilities in the cryptocurrency market.
Q.How will the Commodity Futures Trading Commission's decision affect Bitcoin's availability on exchanges?
How will the Commodity Futures Trading Commission's decision affect Bitcoin's availability on exchanges?
The CFTC's decision allows Bitcoin derivatives to be offered on the Cboe Futures Exchange starting this weekend. It also permits trading on the world’s biggest futures venue, the Chicago Mercantile Exchange, from December 18.