Bitcoin plunges after strong gains

Bitcoin fell by as much as 15 percent to below $14,500 (€13,100) on profit-taking on Friday morning. The virtual currency, which has no central bank backing and no legal exchange rate, hit a new record of $17,000 before plummeting to $14,480 in Asian afternoon trading, Bloomberg News said. It then regained a little, to stand at $16,100.

Bitcoin has soared over 50 percent in just a week and is up from a 2017 low of $752 in mid-January.

To date it has only been traded on specialist platforms, but will debut on Cboe Futures Exchange this weekend before hitting the major Chicago Mercantile Exchange (CME) on December 18.

Bitcoin flirted with $17,000 (€14.410) on Thursday, triggering a warning the cryptocurrency was "like a charging 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 then later surged to $16,777.08 around 1630 GMT, according to Bloomberg data.

"People are looking at a video game as a regular market. And it’s clearly not, otherwise it wouldn’t be where it is already," said Walter Zimmerman, technical analyst at ICAP TA. "It’s beyond abnormal, it’s unprecedented. Every other commodity has natural sellers," he added.

The rally came just a day after the virtual currency hit the $12,000 mark for the first time, while it has soared nearly 70 percent in value in just one week.

Bitcoin — which came into being in 2009 as a bit of encrypted software and has no central bank backing it and no legal exchange rate — has risen from a 2017 low of $752 in mid-January and surged dramatically in the past month. The increased interest has been driven by growing acceptance among traditional investors of an innovation once considered the preserve of computer nerds and financial experts. 

Yet, while the financial world still reverberates with repeated warnings, it is clear that nothing about the future of Bitcoin, whether positive or negative, is certain.

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Last week, US regulators gave the green light for Bitcoin futures to be traded on the Chicago Mercantile Exchange (CME), the world's biggest futures center, while on Thursday, the Australian Securities Exchange (ASX) confirmed it would start using the blockchain technology behind Bitcoin to replace its current system for the clearing and settlement of equities, becoming the first major exchange to commit to the often-derided technology.

Don't believe the hype?

Having been valued below $7,000 as recently as one month ago, Bitcoin's acceleration over the past few weeks has been particularly pronounced. That is despite the warnings from various financial figures and institutions becoming equally pronounced — just last week the Bank of France said the cryptocurrency had "no economic basis".

Despite the latest gains, and the news regarding the increasing regulatory acceptance of Bitcoin, market analysts remain highly skeptical.

"There is an unfathomable amount of new participants piling into the cryptocurrency market," Shane Chanel of ASR Wealth Advisers told AFP. "Once the hype slows down, we will most certainly see some sort of correction."

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Chris Weston of the UK-based IG Group was also clear about his view that a fall was coming. "When the price does turn and there is confusion, even panic.... then watch the short sellers come out in droves," he said.

ASX opens up to blockchain

Cryptocurrencies such as bitcoin use a technology known as blockchain, which records transactions that are updated in real time on an online ledger. Transactions happen when heavily encrypted codes are passed across a computer network.

The announcement on Thursday by the ASX that it will now use blockchain technology for its clearing and settlement system is not insignificant in the current 'bitcoin bubble' debate, given that it is the first major exchange to commit to the technology that essentially underpins the now world-famous cryptocurrency.

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"ASX has been carefully examining distributed ledger technology for almost two and a half years, including the last two years with Digital Asset,” explained ASX chief executive Dominic Stevens, saying that use of the technology would put Australia "at the forefront of innovation in financial markets".

An essential attraction of bitcoin and blockchain technology is its potential to reduce the need for a central financial authority and for financial intermediaries, reducing the costs of transactions in the process.

Yet whether it is bitcoin or blockchain, many twists and turns remain ahead on the road to either ruin or acceptance.

aos/uhe (AFP, Reuters)