Bitcoin volatile as $11,000 smashed

It’s getting hard to keep up. Bitcoin has added 15% in the past 24 hours, with reporting a high of $11,377 at Wednesday lunchtime. And, although the cryptocurrency fell by $550 in just seven minutes shortly after, it’s still up 9% on the day.

While a few have taken the opportunity to bank profits, momentum remains to the upside as a virtuous circle of successive all-time highs encourages further breathless reporting in the mainstream media, in turn feeding into the rising awareness and yet more buying.

A correction of sorts is predicted, but with newbie buyers piling in, and long margin positions being gobbled up on broking and cryptocurrency derivatives sites, the acceleration still has legs.

This is bitcoin so there will be a correction at some point, but if past form is a guide, it will be treated by many as a buying opportunity.

The market has priced in – if that’s the right phrase – the CME’s introduction of bitcoin futures in the second week of December, but if that doesn’t happen, with the regulator refusing to allow the instrument to trade until it is segregated from the rest of the derivatives market, as some have called for, then a correction of 30% or more is quite possible.

Industry leaders have been sharing their thoughts on what it all means at the Consensus: Invest conference that took place in New York on Tuesday.

Arthur Hayes, chief executive officer and co-founder of the Hong Kong-based BitMEX exchange where cryptocurrencies can be traded on margin, thinks those warning of a bubble have got it all wrong.

“Shorting anything is a very dangerous game, especially if you’re shorting into a transformational monetary system. These transformational experiences happen once every few hundred years and are extremely chaotic.”

Hayes told Bloomberg he thinks bitcoin could be at $50,000 by the end of next year. That will be music to the ears of those entering the market for the first time.

Other thoughts on price targets came from billionaire investor Mike Novogratz, speaking to CNBC’s Fast Money.

“Bitcoin could be at $40,000 at the end of 2018. It easily could. Ethereum, which I think just touched $500 or is getting close, could be triple where it is as well,” he said.

Meanwhile, the deputy governor of the Bank of England (BoE), Sir John Cunliffe, on BBC radio this morning, emphasised bitcoin’s lack of backing, doubting that it could really be viewed as a currency.

“This is not a currency in the accepted sense. There’s no central bank that stands behind it. For me it’s much more like a commodity.”

But is the BoE worried about the implications of a private money developing beyond the control of governments and central banks?

“This is not at a size where it’s a macroeconomic risk to the global economy, but when prices are moving like that, my view would be investors need to do their homework.”

Could it be that the deputy governor is in danger of misjudging the speed at which a speculative bubble around a digital currency such as bitcoin could inflate or, alternatively, if it’s not a bubble but the future of money, how it could begin to affect, and possibly destabilise other areas of the economy and financial markets as money floods into the sector.

Is Cunliffe overlooking the possibility that increasing numbers of consumers are acting on their distrust of banks and governments by betting with their wallets and purses that a decentralised cryptocurrency is a safer bet than leaving their money to be supposedly manipulated and debased at the whim of central bankers?

Crypto enthusiasts might say there’s a reason why bitcoin is trading at 70% premium in Zimbabwe. It begs the question, what might happen to the price of bitcoin if/when another systemic financial crisis hits the developed economies?

Some CFD brokers have imposed limits on trade sizes and increased interest charged on overnight positions in crypto in an attempt to discourage its clients from holding trades for more than a day or two’s duration.

Taking long positions on bitcoin with high levels of leverage exposes brokers to huge potential losses.

There are worries about retail investors getting badly burned. “When we’re starting to get into these crazy numbers, I’m a little bit fearful that retail traders are jumping in under the false guise of this will run on forever,” said Stephen Innes, head of trading at Oanda, speaking at the Consensus: Invest conference. “We know things never go in a straight line.”

And in the correction camp is Octagon Strategy’s Dave Chapman. “Admittedly, there is an element of FOMO [fear of missing out].

That’s not entirely healthy for the current market. There is a sizable amount of people investing in bitcoin purely on speculation.”

The danger of retail investors taking foolish risks is reflected in this year’s 10-fold increase in searches on Google for the phrase “buy bitcoin with credit card”.

Bitcoin gatecrashing into mainstream consciousness is being helped by further indications of piqued interest among financial institutions.

US exchange traded funds (ETF) provider Reality Shares Advisors has applied to the US Securities and Exchange Commission to launch a blockchain-focused product called Horizons ETF Management.

The fund will track the performance of the Horizons Blockchain Index by investing in companies “poised to grow due to blockchain”.

The founder of tech investment website TechCrunch, Silicon Valley venture capitalist Mike Arrington, announced yesterday the setting up of a $100 million hedge fund called Arrington XRP Capital, which will invest in a variety of crypto assets.

In a first, the fund’s portfolio value will be denominated in a cryptocurrency, Ripple – XRP is the ticker for Ripple. The currency is designed for use in the realm of financial transactions, in which money is moved around in milliseconds.

In other news, underlining how blockchain technology is beginning to shift from incubator prototypes to real-world application, the German-based IOTA Foundation has announced a tie-up with a bevy of blue chip companies, including Fujitsu, Deutsche Telecom (DTE), Microsoft (MSFT) and PricewaterhouseCoopers.

The firms will trial deployment of IOTA’s technology that allows Internet-of-Things devices to interface with datasets that currently go largely unused, making such devices much more “intelligent”. The IOTA coin is up 34% to $1.44.

Another top-tier coin Cardano (coin ticker ADA) has powered 135% higher. It claims to be “the first blockchain project to be developed from a scientific philosophy” and has an impressive array of academics behind it. Its proof of stake system is thought to be one of the most secure such implementations yet developed.

There are also plans for a credit card and it is working on a new programming language based on so-called “formal verification” that would prevent bugs in smart contracts.

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.