NEW YORK. 8 Dec 2017:
Bitcoin rocketed to a lifetime high well above US$16,000 yesterday – after climbing some 67% over one week – intensifying the debate about whether the cryptocurrency is in a bubble about to burst.
The largest US. cryptocurrency exchange struggled to keep up with record traffic as the price surged, with an upcoming launch of the first bitcoin futures contract further fuelling investor interest.
Proponents say bitcoin is a good medium of exchange and a way to store value, much like a precious metal. They also argue it is preferable to traditional currencies because it is not subject to central bank manipulation.
The supply of bitcoin will eventually be capped at 21 million, and some 16.7 million have already been released.
But critics say the price run-up is a bubble that has been driven mostly by speculation, leaving bitcoin vulnerable to a sharp reversal. JPMorgan Chase & Co chief executive Jamie Dimon famously called bitcoin a fraud in September.
“Bitcoin remains a major gamble as it is very much an asset that remains in uncharted waters, we’ve simply not experienced this before,” said Nigel Green, founder and chief executive of deVere Group.
“Also, an asset that goes almost vertically up should typically raise alarm bells for investors.”
The world’s biggest cryptocurrency has surged 17-fold in value so far this year.
The latest move brought its so-called market cap – its price multiplied by the number of bitcoins in circulation – to nearly US$305 billion, according to Coinmarketcap, a trade website. By comparison, the market value of Wal-Mart Stores Inc is around US$288 billion.
Analysts said the launch slated for this weekend of bitcoin futures by Cboe Global Markets Inc’s Cboe Futures Exchange, one of the world’s biggest derivatives exchanges, was helping drive up the price on expectations it would draw more investors to the market.
The CME Group will launch bitcoin futures one week later, while Nasdaq Inc plans to get into the mix next year.
It is not clear to what extent big US banks will participate in the new bitcoin-related activity.
Goldman Sachs Group Inc will clear bitcoin futures for certain clients when they go live, a spokeswoman said yesterday.
The bank is “evaluating the specifications and risk attributes for the bitcoin futures contracts as part of our standard due diligence process,” spokeswoman Tiffany Galvin said.
Bitcoin climbed as high as US$16,615.62 on the Luxembourg-based Bitstamp exchange BTC=BTSP, up nearly 22% on the day. It was last at US$16,607.14.
Coinbase, the largest US platform for buying and selling cryptocurrencies, said on Twitter it had experienced an outage due to record traffic. The venue was last up and running.
There were huge disparities between prices across different exchanges. On GDAX, one of the biggest, the price reached US$19,500.
Here are some facts that you might not know about the largest and best-known cryptocurrency.
HOW MANY ARE THERE?
Bitcoin’s supply is limited to 21 million – a number that is expected to be reached around the year 2140. So far, around 16.7 million bitcoins have been released into the system – with 12.5 new ones released roughly every 10 minutes via a process called “mining”, in which a global network of computers competes to solve complex algorithms in reward for the new bitcoins.
ENERGY DRAIN
These mining computers require a vast amount of energy to run. As the price increases, more miners enter the market, driving up the energy consumption further.
A recent estimate by tech news site Motherboard put the energy cost of a single bitcoin transaction at 215kWh – assuming there are around 300,000 bitcoin transactions per day. That’s almost enough energy as the average American household consumes in a whole week.
BITS OF BITCOIN
If you want to buy bitcoin, you do not need to buy a whole one. Bitcoin’s smallest unit is a Satoshi, named after the elusive creator of the cryptocurrency, Satoshi Nakamoto. One Satoshi is one hundred-millionth of a bitcoin, making it worth around US$0.0002 at current exchange rates.
BITCOIN BILLIONAIRES
Bitcoin has performed better than every central bank-issued currency in every year since 2011 – except for 2014, when it performed worse than any traditional currency. So far in 2017, it is up more than 1,400%.
If you had bought US$1,000 of bitcoin at the start of 2013 and had never sold any of it, you would now be sitting on around US$120 million. Many people consider bitcoin to be more of a speculative instrument than a currency, because of its volatility, high transaction fees, and the fact that relatively few merchants accept it.
EXCHANGE HEISTS
More than 980,000 bitcoins have been stolen from exchanges, either by hackers or insiders. That’s a total of more than US$15 billion at current exchange rates. Few have been recovered.
MYSTERY CREATOR
Despite many attempts to find the creator of bitcoin, and a number of claims, we still do not know who Satoshi Nakamoto is, or was.
Australian computer scientist and entrepreneur Craig Wright convinced some prominent members of the bitcoin community that he was Nakamoto in May 2016, but he then refused to provide the evidence most of the community said was necessary.
It is not clear whether Satoshi Nakamoto, assumed to be a pseudonym, was a name used by a group of developers or by one individual. Nor is it clear that Nakamoto is still alive – the late computer scientist Hal Finney’s name is sometimes put forward.
Developer Nick Szabo has denied claims that he is Nakamoto, as has tech entrepreneur Elon Musk more recently.
INFLATED CHINESE TRADING
Until earlier this year, it was thought that Chinese exchanges accounted for around 90% of trading volume. But it has become clear that some exchanges inflated their volumes through so-called wash trades, repeatedly trading nominal amounts of bitcoin back and forth between accounts.
Since the Chinese authorities imposed transaction fees, Chinese trading volumes have fallen sharply, and now represent less than 20%, according to data from website Bitcoinity.
“MARKET CAP”
The total value of all bitcoins released into the system so far has now reached as high as US$283 billion. That makes its total value – sometimes dubbed its “market cap” – greater than that of Visa, and bigger than the market cap of BlackRock and Citigroup combined.
CRYPTO-RIVALS
Bitcoin is far from the only cryptocurrency. There are now well over 1,000 rivals, according to trade website Coinmarketcap.
“SHORTING”
It is already possible to short bitcoin on a number of retail platforms and exchanges, via contracts for difference (CFDs), leveraged-up margin trading or by borrowing bitcoin from exchanges without leverage.
But a number of big financial institutions – including CME Group, CBOE and Nasdaq – have recently announced that they will offer bitcoin futures, which will open up the possibility of shorting the cryptocurrency to the mainstream professional investment universe.
LOST BITCOINS
Many fewer than the 16.7 bitcoins that have been mined are actually in circulation and accessible – because of forgotten passwords, accidental losses, hoarding, owners forgetting about coins or even dying.
It is impossible to know for sure how many bitcoins have been permanently lost, because those that have are still in the system, in dormant addresses.
But according to a December 2013 research paper by the University of San Diego and George Mason University, 64% of the 12 million bitcoins that had by then been mined had never been spent.
Bitcoin developer Sergio Lerner estimates that almost one million unspent bitcoins belong to the cryptocurrency’s mysterious creator.
RICH LIST
There are 5,638,155 bitcoins in the 1,000 biggest wallets – more than a third of all bitcoins in circulation. That makes the 1,000 biggest wallet-holders worth a collective US$87 billion, at current rates.
HIGH FEES
The average fee paid to process bitcoin transactions has soared over the past year, outpacing even the staggering price increase of the cryptocurrency itself. Each bitcoin transaction now costs around US$7.30 to process, up from around 30 cents at the start of the year, according to trade website BitInfoCharts.
FORKING OFF
If you owned bitcoin prior to 1 Aug 2017, you also own Bitcoin Cash – a clone of the original. That is because on that date bitcoin underwent a so-called “fork”, in which the underlying software code was split into two.
One unit of Bitcoin Cash is now worth more than US$1,300. That adds roughly another 135% to the returns from a bitcoin investment at the start of the year.
– Reuters