Bitcoin rockets above $5,000 to all-time high

A Bitcoin and Dollar notes are seen in this illustration picture
A Bitcoin and Dollar notes are seen in this illustration picture taken September 27, 2017. REUTERS/Dado Ruvic/Illustration

October 13, 2017

By Jemima Kelly

LONDON (Reuters) – Bitcoin smashed through the $5,000 barrier for the first time on Thursday, jumping as much as 8 percent on the day as investors shrugged off the latest warnings on the risks of buying into the booming cryptocurrency market.

Bitcoin, the biggest and best-known cryptocurrency, has chalked up a more than fivefold increase in price this year.

Typically for bitcoin, which at less than nine years old is still highly volatile and illiquid compared with traditional currencies and assets, the precise reason for its recent tear was unclear.

Upcoming splits in its software, reports that Goldman Sachs is considering offering bitcoin trading, rumors that China could ease restrictions, and even a political crisis in Spain’s Catalonia region were all cited by market-watchers as reasons for the rally.

But the main factor could simply be demand from investors wanting ‘in’ on a market that has provided gains exceeding those of any other currency in every year bar one since 2010.

“People are just wanting to be part of it,” said Ryan Nettles, head of FX trading and market strategy at Swiss bank Swissquote, which launched bitcoin trading two months ago. Nettles said interest had been much higher than anticipated and has come from banks, hedge funds and brokers.

“The interest really stems from the media hype,” he added.

On Wednesday Russian President Vladimir Putin warned of the “serious risks” surrounding the nascent market, while Russia’s central bank said it would ban cryptocurrency trading websites.

But that was not enough to put investors off, with bitcoin rallying around 10 percent since then.

Data released last week from SEMrush, a search engine data analytics firm, found the price had a 91 percent correlation with Google searches on bitcoin, suggesting that all news — whether negative or positive — drives up demand, even if bad news can have a temporary negative effect.

Bitcoin almost reached $5,000 at the start of September, but fell back sharply after the head of JP Morgan blasted the cryptocurrency as a “fraud” and as China forced exchanges to close down, sparking fears of a broader crackdown.

But after dipping below $3,000 in mid-September, bitcoin has leapt in value by more than 75 percent in four weeks.

“Bitcoin was designed to operate outside of the influence of governments and central banks, and is doing exactly that,” said Iqbal Gandham, Managing Director at retail trading app eToro, which has seen huge increases in cryptocurrency trading volumes.

CRYPTO-RIVALS ALSO RALLY

By 1245 GMT, bitcoin was trading up 8 percent on the day around $5,200 on Luxembourg-based exchange Bitstamp.

Though there have been many warnings about a bitcoin “bubble”, including from European Central Bank Deputy Governor Vitor Constancio, some say it has much further to climb. But determining its value is difficult.

“For most currencies there are several accepted methodologies for estimating relative value, normally based on macroeconomic fundamentals,” said EFG Asset Management’s Global Head of Research, Daniel Murray. “For bitcoin no such fundamentals exist.”

Other cryptocurrencies — whose prices tend to be highly correlated to bitcoin — also rallied. Their total value — or market capitalization — climbed above $160 billion for the first time since early September, according to industry website Coinmarketcap.com.

Two upcoming “forks” in the bitcoin software code, which will create rival clones of the cryptocurrency, were seen by some as a reason for the rise in price, which saw a boost after the “Bitcoin Cash” clone was created at the start of August.

“Investors are seeing the lessons of history in the up-and-coming forks and hoping for an extra dividend,” said Charles Hayter, co-founder of data analysis website Cryptocompare, adding that rumors on online forums that China could reopen exchanges could also be affecting the price.

(This story corrects to show head of JP Morgan called bitcoin fraud, not Goldman Sachs)

(Additional reporting by Jamie McGeever; Editing by Catherine Evans)

  • Rick3

    The real issues with cryptocurrency is threefold: 1) No protection for the investor and two exchanges have been hacked and collapsed; 2) There are many cryptocurrency copycats now and in this instance competition is bad; 3) Since BTC is illiquid and a fixed supply, while not paying interest and all investment opportunity is predicated on hype of the price rather than tangible value, the investor may find that they just gave their money away to an anonymous source that is impossible to trace. Finally, as the article noted, much of this price hike is due to media hype both positive and apocalyptic and that is a ripe environment for ‘pump & dump’ schemes and overnight collapses. The street is littered with history about these situations. IMHO if you buy into it then wait for a downturn as this ethereal symbolic currency is just that, as we used to say in the software industry “vaporware’. Personally I prefer investments with tangible value (real estate, dividend producing funds, tax leveraged binds, precious metals) so when I cash out I actually receive a ‘medium of exchange’ that is acceptable at McDs or my Lamborghini dealer or my doctor.

  • USVoter

    The majority of bitcoins are held by speculators, and most of the rest by cybercriminals of some sort. It is great method of laundering dirty money, evading economic sanctions and taxes, and getting ransom payments for computer virus makers. It really is only a matter of time before the US government will have to crack down on this, so if your money is in bitcoins it can evaporate overnight.

  • TexanForever

    … Don’t know if Bitcoin’s worth anything or not, but I see two related factors.

    American “money” was rendered worthless when the Democrats stopped notes from being redeemable in silver or gold. Also, in the push for a one-world government the international bankers hate anything they can’t control, like bitcoin.

    It’s going to get interesting.
    .

  • Dell Wilber

    Really? Because it wasn’t too long ago that Bitcoin was going belly up. Methinks something is rotten in Denmark, and the media is propping this up.

  • digriff

    Folks are going to get fleeced real hard on that stuff……

    • Ken Jones

      Maybe. I looked into it but decided it was too risky. Of course it has gone from 50 to over 5,000 since then! 😉

  • Steven Wilson

    Who cares.

  • Disgusted Citizen

    Goldman Sachs is probably behind it.

  • OceanaJones

    HEY! I found one of these embedded in my hard drive! Where can I cash it in?

  • RMCS Ret.

    I guess if you have a few bucks to gamble with it could be worth a go. It’s not something I want to get into. It’s a currency that is based on nothing, invented by an unidentified programmer, that sooner or later will probably implode. This from Bitcoin’s own web site…..
    “The price of a bitcoin can unpredictably increase or decrease over a
    short period of time due to its young economy, novel nature, and
    sometimes illiquid markets. Consequently, keeping your savings with
    Bitcoin is not recommended at this point. Bitcoin should be seen like a
    high risk asset, and you should never store money that you cannot afford
    to lose with Bitcoin. If you receive payments with Bitcoin, many
    service providers can convert them to your local currency.”

    Supposedly the supply is limited to the original supply and can never be increased. So says the original unidentified programmer. The idea of a currency that is untraceable is nice, but sooner or later governments are going to realize how simple it is to launder money through the system and put a bunch of controls on it or kill it altogether.

    This old man says no thanks.

  • RMB38

    I don’t personally know anyone who has been sucked into this mess. Most of us want NOTHING to do with it.

    • Informed

      Buy what you understand. I don’t see the tangible value supporting Bitcoin, so my guess is that it could easily go down 80% next year.

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