Bitcoin’s recent wobbles have given fresh urgency to a question that’s gripped market observers for much of the past year: Will the cryptocurrency go down as one of history’s most infamous bubbles, alongside tulipmania and the dot-com craze?
The magnitude of Bitcoin’s boom (before it lost as much as 50 percent from its Dec. 18 high) suggests investors have reason to be worried.
As the chart shows, the cryptocurrency’s nearly 60-fold increase during the past three years was truly extraordinary.
It dwarfed the Nasdaq Composite Index’s gain during the headiest days of the 1990s. Going further back, it comfortably outstripped the Mississippi and South Sea bubbles of the 1700s. It even topped the Dutch tulipmania of the 1630s, though that last comparison should be taken with a grain of salt given the scarcity of recorded tulip values. (The chart includes prices for just one varietal; consistent post-peak figures were unavailable.)
Bulls say that Bitcoin’s boom is far from over, and that there’s more to analyzing a market than just measuring price gains. While the recent tumble has alarmed some investors, the cryptocurrency has bounced back from several previous swoons exceeding 50 percent. If Bitcoin did become a widely-accepted form of digital gold, as predicted by Cameron Winklevoss of Facebook fame, it could have a lot further to surge.
There’s also more than one way to slice a rally. On an annualized basis, Bitcoin’s three-year rise has been slower than the gains seen during several of history’s biggest manias — most notably the Mississippi and South Sea bubbles.
Still, skeptics abound. Howard Wang of New York-based Convoy Investments LLC and Jeremy Grantham of GMO LLC have analyzed Bitcoin’s advance relative to past frenzies and concluded that it’s unsustainable. Grantham, who helps oversee about $74 billion as GMO’s chief investment strategist, summed up his concerns in a Jan. 3 letter to investors:
“Having no clear fundamental value and largely unregulated markets, coupled with a storyline conducive to delusions of grandeur, makes this more than anything we can find in the history books the very essence of a bubble,” he wrote.
The strategist has a mixed record of success with such warnings. While Grantham was correct to call the 1990s surge in tech stocks a bubble, he exited too soon and missed out of some of the market’s biggest gains.
Only time will tell whether Grantham and other bears are right, wrong, or just too early when it comes to Bitcoin.
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A South Korean Bitcoin exchange was hacked earlier this week and all blame is being directed toward its unpredictable neighbor up north.
Investigators, led by South Korean law enforcement and a state cybersecurity agency, are currently looking into North Korea’s involvement in a cybersecurity heist that saw it make off with 17 percent of Youbit’s assets, according to a Wall Street Journal report. The investigation is currently in its early stages, but authorities are convinced it was Kim Jong-un and his cohorts who used malware to rob the exchange.
That seems like a reasonable conclusion given historical context. Hackers from North Korean infiltrated the same exchange in April and several other cybersecurity attacks have been conducted against other South Korean exchanges.
Youbit posted a message on its website explaining it was forced to file for bankruptcy. It informed customers they would receive their holdings at 75 percent value.
North Korean hackers have started to conduct attacks for financial gains to overcome crippling worldwide sanctions. A September report from security researchers at FireEye found at least six major attacks conducted by North Korea that targeted cryptocurrency in South Korea. The money it gains from these attacks could be going toward advances in its nuclear-weapons program. North Korea’s focus on Bitcoin comes after the cryptocurrency’s value skyrocketed to nearly $20,000 a coin from just $1,000 at the start of the year.
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For those who aren’t familiar, Bitcoin is a decentralized form of digital money that isn’t regulated by any banks or government. It uses cryptography techniques to ensure secure transactions and control the creation of new units. Its volatility makes it appealing to hackers who are looking to turn a quick profit.
The Youbit hacking comes days after the U.S. government publicly blamed North Korea for unleashing the devastating WannaCry malware attack that infected hundreds of thousands of computers around the world.
Other cryptocurrencies have followed the pattern: Ethereum, Litecoin, and Bitcoin cash have all lost a quarter of their value over the last day.
All of this frenetic activity likely overburdened Coinbase’s services — something it might better account for going forward: New currencies are inherently unstable, and the today’s cryptocurrencies will be swinging up and down for quite some time.
Bitcoin rebounded on Saturday along with most of the major cryptocurrencies, halting a four-day tumble that drew worldwide attention to the unregulated $500 billion market that’s frequently called a bubble.
The double-digit bounceback was strongest with second-tier digital coins. Bitcoin cash soared 21 percent and litecoin gained 12 percent as cryptocurrency traders regained optimism. They weren’t put off by comments published Saturday from a central banker in Germany that “the risk of rapid losses” is obscured in cryptocurrencies.
“The enthusiasm hasn’t been destroyed,” Marc Ostwald, global strategist at London-based ADM Investor Services International, said by phone from Warsaw. “It’s a volatile market, and investors are hungry for that. They say everything else is boring.”
The broad recovery on Saturday coincided with a pause in bearish news that had snowballed since Monday and shaved 24 percent off bitcoin’s value, its biggest four-day selloff since 2015. Comments by central bankers, a decision by litecoin’s founder to sell all his holdings and investors’ wishes to cut stakes before the holiday season fueled the plunge.
“With holidays approaching, some people want to step away from the table, and take their chips with them,” Ostwald said about the selloff. “Still, I wouldn’t want to put it down too much to rationality, because this is not a rational market.”
While bitcoin wasn’t the most volatile crypocurrency in the past week, it’s the largest, and it shook the world of digital-coin trading on Friday when its interday plunge reached 30 percent. That was the steepest dive since Jan. 14, 2015, back when its market value was just $2.4 billion. On Saturday it was about $260 billion.
Bitcoin advanced 10 percent to $15,530 at 4:21 p.m. New York time on Saturday, compared with 24 hours earlier, according to data on coinmarketcap.com.
In a late-week comment that undercut confidence, Michael Novogratz, the former Goldman Sachs Group Inc. and Fortress Investment Group LLC macro trader, said he’s shelving plans to start a cryptocurrency hedge fund. He predicted that bitcoin may extend its plunge to $8,000. Earlier this month he predicted it could reach $40,000 within a few months.
Growing pains in the digital-coin world and warnings emerged all week, adding to volatility.
Coinbase, one of the larger trading platforms, on Friday said all buys and sells were temporarily unavailable before they were re-enabled, according to its website. There were no incidents reported Saturday.
In South Korea, Yapian, the owner of bitcoin exchange Youbit, said Tuesday it would close and enter bankruptcy proceedings after a cyberattack that claimed 17 percent of its total assets.
There’s been a string of warnings by regulators for investors in digital coins.
“We are seeing a rapid rise in value, which hides the risk of rapid losses,” Bundesbank board member Carl-Ludwig Thiele said in a Euro am Sonntag report. He said there is a wide debate going on about the use of digital central-bank money in a closed system, but that he doesn’t currently expect it’s introduction.
Felix Hufeld, president of German banking supervisor BaFin, advised consumers that trading in bitcoin would produce “bitter losers” and could result in a “total loss,” in an interview with German newspaper Bild.
That echoed comments three days ago by the European Union’s financial-services chief, Commissioner Valdis Dombrovskis, who asked the heads of the EU’s three financial supervisors to update their warnings to consumers “as a matter of urgency” in light of recent market developments, according to a letter seen by Bloomberg.
In past years, central banks and the commercial lenders they oversee have made strides to curb money-laundering through greater transparency rules, only to see anonymous transactions explode in the nascent cryptocurrency industry — under names like Verge and Zcash. Their admonishments this month haven’t stopped double-digit rebounds.
“Huge rises and sudden, spectacular setbacks wouldn’t surprise me going forward,” ADM’s Ostwald said. “The worry is going to be, at some point, the pips are going to start squeaking. Retail investors losing money will ask, ‘Why aren’t you intervening to help me? And the answer is going to be, ‘Well, this is a casino. On your head, be it.’ ”
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It’s another green day in the world of cryptocurrencies, with all of the ten largest coins rising significantly in value in the last 24 hours. However, this time it’s not Bitcoin that’s leading the charge.
Yes, Bitcoin’s price rose to $14,043 — a 4.99% increase in the last 24 hours — bringing the most popular cryptocurrency’s market cap to $235.6 billion. But it’s still a long way from Bitcoin’s all time high of $19,962 in December.
But all of the other major cryptocoins rose far more than Bitcoin. Ripple, the second-largest cryptocurrency by market cap, rose 11.48% to a new record of $2.47. Ethereum, which is in third place, rose 16.97%, to $889.77 — another all-time high. And Stellar, which is currently in eighth place by market cap, grew a whopping 36.03%, which brought its price to a record high of $665.
All in all, the market cap of the entire cryptospace is currently at a record $654.2 billion, an impressive feat considering Bitcoin has lost thirty percent of its value in the last couple of weeks.
There’s no significant news to which we can attribute this recent growth. Ripple, which had recently overtaken Ethereum as the second-largest cryptocoin, has been growing like a weed for a while now without any major developments. As for Ethereum, it likely benefitted from the launch of a test network for Casper, a significant upgrade for Ethereum which is currently in alpha stage.
While it historically wasn’t very smart to bet against Bitcoin, it looks like it’s time for all the other cryptocurrencies to shine. Bitcoin dominance as measured by CoinMarketCap — the percentage of Bitcoin’s market cap compared to the market cap of all other cryptocoins — is at a historic low of 36%.
It’s possible that the hoards of investors who recently entered the crypto space (popular exchange Coinbase has grown its user base by millions in the last couple of months) are now diversifying into coins that aren’t Bitcoin. It’s also possible that Bitcoin’s largely stagnant development — in contrast to the extremely busy roadmaps from most of its competitors — is driving investors away. On the flip side, it’s not unimaginable that Bitcoin is just taking a little break before it explodes again.
Bitcoin faced one of its biggest tests this week, losing almost 20 percent of its value after the world’s largest cryptocurrency reached a record high Monday.
The digital currency plunged as much as 30 percent on Friday, before paring losses, as this week’s selloff extended to a fourth day. The weekly decline is the biggest in almost three years. Other cryptocurrencies also tumbled: ethereum dropped as much as 36 percent and litecoin slumped as much as 43 percent, according to composite prices on Bloomberg.
Michael Novogratz, the former Goldman Sachs Group Inc. and Fortress Investment Group LLC macro trader, said he’s shelving plans to start a cryptocurrency hedge fund and predicted that bitcoin may extend its plunge to $8,000.
“We didn’t like market conditions and we wanted to re-evaluate what we’re doing," Novogratz said in a phone interview. He predicted last week that bitcoin could reach $40,000 within a few months.
Bitcoin dropped to as low as $10,776, before recovering to $14,303 at 4:04 p.m. in New York. It last traded below $10,000 on Dec. 1, when the U.S. Commodity Futures Trading Commission agreed to allow trading in bitcoin futures. The price of the digital coin had more than doubled in the prior three weeks.
The losses represent a major test for the cryptocurrency industry and the blockchain technology that underpins it, which have rapidly entered the mainstream in recent weeks. Bears cast doubt on the value of the virtual assets, with UBS Group AG this week calling bitcoin the “biggest speculative bubble in history.” Bulls argue the technology is a game changer for the world of investment and finance. Both will be closely watching the outcome of the current selloff.
“The sharks are beginning to circle here, and the futures markets may give them a venue to strike,” said Ross Norman, chief executive officer of London-based bullion dealer Sharps Pixley Ltd., which offers gold in exchange for bitcoin. “Bitcoin’s been heavily driven by retail investors, but there’ll be some aggressive funds looking for the right opportunity to hammer this thing lower.”
Traders who bought the currency on futures exchanges using collateral may start facing margin calls following the price decline. Two venues launched products in recent weeks that required hefty security, with Cboe needing 44 percent to clear contracts, and the CME 47 percent. Brokers set safety nets even higher.
Coinbase, one of the world’s largest cryptocurrency exchanges, said all buying and selling was temporarily disabled during today’s rout, after having delays in processing wire transfers and verifying new customers for the past week due to higher traffic. Bitcoin transaction volume jumped more than 30 percent on Coinbase’s GDAX exchange, while fees to approve and record the transactions on the blockchain surged to a record $55, according to Bit Info Charts.
Many of the recent news stories and market moves connected to cryptocurrencies appear to carry hallmarks of the mania phase of a bubble. Long Island Iced Tea Corp. shares rose as much as 289 percent on Thursday after the unprofitable Hicksville, New York-based company rebranded itself Long Blockchain Corp. Bank of Japan Governor Haruhiko Kuroda said on Thursday bitcoin isn’t functioning like a normal means of payment and is being used for speculation.
Still, cryptocurrencies are attracting established players. Goldman Sachs Group Inc. is setting up a trading desk to make markets in digital currencies such as bitcoin, according to people with knowledge of the strategy. The bank aims to get the business running by the end of June, if not earlier, two of the people said.
For related news and information: XBT Curncy GP for bitcoin VCCY for a cryptocurrency monitor
Move comes less than two weeks after high-profile digital currency exchange in Seoul was hacked and went bankrupt
Bitcoin plunged by more than $1,000 (740) on Thursday after South Korea said it was planning a crackdown on trading in the digital currency in the latest of a string of warnings for investors.
It dropped to about $13,500 after trading at about $15,400 on Wednesday. The dip was seen as a further illustration of bitcoins volatility.
The cryptocurrency has surged in value this year by more than 900%, becoming one of the biggest stories in finance amid a slew of warnings of a pending market crash.
Bitcoin recovered ground later on Thursday and was trading at about $14,000 at 5.30pm UK time.
South Korea, which is one of the biggest markets in the world for bitcoin, said it was preparing a ban on opening anonymous cryptocurrency accounts and new legislation to enable regulators to close coin exchanges if they felt there was a need to do so.
According to Reuters, the South Korean government issued a statement saying it had warned several times that virtual coins cannot play a role as actual currency and could result in high losses due to excessive volatility.
The move came less than two weeks after the high-profile insolvency of one of the countrys digital currency exchanges, after the Seoul-based platform was hit by hackers for a second time.
The crackdown in South Korea comes amid repeat warnings from leading figures in finance and some of the worlds top economists, who have said the currency is a vehicle for fraudsters and drug dealers. There are also fears that its rapid increase in value this year could quickly unwind, causing severe losses for investors.
However, several leading academics have said bitcoin poses no threat to the stability of the financial system, as its total value stands at about $240bn, paling in comparison with the total value of global shares at almost $80tn.
Companies are also exploring ways to exploit blockchain which is the technology underpinning bitcoin and works by securely encrypting information to speed up everything in business from making payments to transferring data and contracts.
Bitcoin rose to nearly $20,000 a week before Christmas, following the introduction of derivatives trading for major investment firms on the Chicago Mercantile Exchange, which enabled hedge funds to place bets on future prices. However, it then lost 25% of its value on 22 December, before recovering earlier this week and then slumping again on Thursday.
While some have said more investors in the market could help support higher valuations, the currency is on a jittery run.
Craig Erlam, senior market analyst at trading firm Oanda, said the recent fall in value could have made speculators more wary of the potentially negative news from Korea for its market price.
We saw plenty of this in reverse on the way up, with positive news triggering significant rises and negative news being brushed aside. It wouldnt surprise me if we see prices heading back below $10,000 before they find their feet again, he said.
Digital currencies have grabbed the attention of global regulators this year as a consequence of bitcoins rapid price growth, gaining in value from about $1,000 at the beginning of 2017. Other cryptocurrencies such as Ethereum, Ripple and Litecoin have also gained in value this year.
Closer control of digital currencies by financial watchdogs could result in further volatility for bitcoin, as part of its attraction among supporters has been the lack of government and central bank oversight.
The UKs Financial Conduct Authority has issued a warning about investing in initial coin offerings, which use digital tokens to raise funds for startup businesses and projects.
Ethereum, the second largest cryptocurrency by market cap (behind Bitcoin), is currently trading at $707, a 20% increase in the last 24 hours.
This is a new record for Ethereum, which has kept pace with Bitcoin for the better part of the year but started falling behind sometime in the summer. Bitcoin’s price grew tremendously in the second part of the year. One bitcoin is currently worth $17,176.
Ethereum’s market capitalization, according to CoinMarketCap, is currently $66.5 billion.
Besides being a blockchain-based cryptocurrency, Ethereum has fairly little to do with Bitcoin. While Bitcoin is primarily a payment system, Ethereum is a platform for decentralized apps running on its blockchain.
Ethereum’s platform ushered in a completely new breed of startups that raised funds via initial coin offering or ICO events. Participants exchange Ethereum for new digital tokens created on the Ethereum blockchain. ICOs raised more than $1.24 billion in the third quarter of 2017, according to CoinDesk.
Most recently, Ethereum has been in the news due to a popular game called CryptoKitties, which lets users collect and trade digital kittens stored on Ethereum’s blockchain.
How do I politely tell my finance professor that 8% stock returns are boring when I’m making a 43.6% return on Ethereum without getting a lecture about crypto currency volatility😁 pic.twitter.com/zfInKlNJvR
Looking at price alone, Ethereum’s growth has been even more impressive than Bitcoin’s this year. The cryptocurrency was trading for about $8.3 in January; its current price represents a 8,500% increase.
Ethereum might be rising due to recent comments by SEC chairman Jay Clayton, who published a statement on Monday warning about the dangers of ICOs, which are largely unregulated. He also said that some digital tokens traded in ICOs aren’t securities and do not fall under SEC’s jurisdiction.
Numerous other cryptocurrencies continue yesterday’s rally, most notably, the banking-oriented Ripple, which grew by 73% in the last 24 hours and now has a market cap of $18 billion.
Disclosure: The author of this text owns, or has recently owned, a number of cryptocurrencies, including BTC and ETH, as well as a swiftly rising number of digital kittens.
Bitcoin is losing its luster with some of its earliest and most avid fans — criminals — giving rise to a new breed of virtual currency.
Privacy coins such as monero, designed to avoid tracking, have climbed faster over the past two months as law enforcers adopt software tools to monitor people using bitcoin. A slew of analytic firms such as Chainalysis are getting better at flagging digital hoards linked to crime or money laundering, alerting exchanges and preventing conversion into traditional cash.
The European Union’s law-enforcement agency, Europol, raised alarms three months ago, writing in a report that “other cryptocurrencies such as monero, ethereum and Zcash are gaining popularity within the digital underground.” Online extortionists, who use ransomware to lock victims’ computers until they fork over a payment, have begun demanding those currencies instead. On Dec. 18 hackers attacked up to 190,000 WordPress sites per hour to get them to produce monero, according to security company Wordfence.
For ransomware attacks, monero is now “one of the favorites, if not the favorite,” Matt Suiche, founder of Dubai-based security firm Comae Technologies, said in a phone interview.
Monero quadrupled in value to $349 in the final two months of 2017, according to coinmarketcap.com, placing it among a number of upstart coins that rose faster than bitcoin, the world’s most valuable digital currency. Bitcoin roughly doubled in the same period, data compiled by Bloomberg show. Monero’s price has climbed another 7 percent so far this year, according to coinmarketcap.com.
In monero’s case, criminals are snapping it up because bitcoin’s underlying technology can work against them. Called blockchain, the digital ledger meticulously records which addresses send and receive transactions, including the exact time and amount — great data to use as evidence. Match an address to a crime and then watch the bitcoin universe carefully, and you can see the funds disappear and reappear in other locations.
Sleuths have developed databases and techniques for digesting that information to eventually nab wrongdoers. Say, for example, a coffee shop in Berkeley is known to have a certain bitcoin address, and a wallet used by an extortionist transfers the same amount there every morning at 9 a.m. Police can stop by and make an arrest.
Started in 2014, monero is very different. It encrypts the recipient’s address on its blockchain and generates fake addresses to obscure the real sender. It also obscures the amount of the transaction.
The techniques are so potent that software that flags coins suspected of being obtained through crime now tags just about anything converted into or out of monero as high risk, according to Pawel Kuskowski, chief executive officer of Coinfirm, which helps exchanges and other companies avoid tainted money. That compares with only about 10 percent of bitcoin, he said.
“What we treat ‘high risk’ is something that’s anonymizing funds,” he said in a phone interview. “How are you going to prove that these funds are not coming from illegal sources?”
Monero is one of many privacy-focused coins, each offering different security features. Its main competitor, Zcash — which isn’t known to have a significant criminal following — can offer even better privacy protection. Instead of creating fake addresses to hide senders, it encrypts their true address. That makes it impossible to identify senders by looking for correlations in addresses used in multiple transactions to pinpoint the real one — a vulnerability for monero. Developers of the coin have made progress in reducing it, though.
Still, Princeton University researchers recently developed a tool that helps them analyze Zcash transactions at least to some extent — but they haven’t been able to crack monero. And Zcash high-security features can’t be used on disposable burner phones, a favorite of criminals eager to stay anonymous.
Developers behind monero say they simply created a coin that protects privacy. Most people use it legitimately — they just don’t want others to know whether they’re buying a coffee or a car, Riccardo Spagni, core developer at monero, said in a phone interview.
“As a community, we certainly don’t advocate for monero’s use by criminals,” Spagni said. “At the same time if you have a decentralized currency, it’s not like you can prevent someone from using it. I imagine that monero provides massive advantages for criminals over bitcoin, so they would use monero.”
Yet criminals are probably only a fraction of monero’s users, according to Lucas Nuzzi, a senior analyst at Digital Asset Research, which provides research to institutional investors.
“As with any disruptive technology, many of the initial use cases revolve around illicit activities,” he wrote in an email. But as everyday people grow concerned about privacy and surveillance, “there is utility in these currencies that go beyond just a means of exchange for illicit goods.”
For related news and information: Bitcoin price graph: XBT Curncy GP Cryptocurrency monitor: VCCY
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Cryptocurrencys year-end rally fails as its investors are finally introduced to the law of financial gravity
Bitcoin lost more than a quarter of its value on Friday as an analyst warned that investors in the cryptocurrency had finally been introduced to the law of financial gravity.
In the latest illustration of bitcoins volatility, it slumped to below $11,500 at one point on Friday touching $11,159 having started the week at a record high close to $20,000 and in its biggest weekly fall since 2013. However, by 5pm London time it was trading at $12,800 as the currency endured a see-saw day.
Bitcoin trades on a number of exchanges and one, Coinbase, was reported to have suspended transactions temporarily while there was also a temporary halt of the new futures contract which allows investors to take bets on the value of the digital currency at a predetermined point in the future on the Chicago Board Options Exchange while it waited for the price to stabilised.
Two futures contracts have been launched this month, which were regarded as taking a step towards legitimising digital currencies at a time when regulators are stepping up their surveillance of products linked to the new technology.
Fridays slump was said to have been fuelled by the founder of another cryptocurrency selling his holdings. Charlie Lee, founder of Litecoin, said he was selling his holdings to avoid a conflict of interest that he faces when talking about the price of the currency which could appear to benefit him.
Jasper Lawler, head of research at London Capital Group, said this decision was probably the root-cause of the insecurity thats been felt across the cryptocurrency space.
Bitcoin investors were introduced to the law of gravity over the last 24 hours Long term holders will be used to this level of volatility but newer crypto traders could be permanently put off, said Lawler.
The exponential price rise seen recently needs new investors to sustain it. In a bubble market its known as the bigger fool theory; you can buy high as long as there is a fool willing to buy it off you even higher, he added.
Charles Hayter, founder and chief executive of industry website CryptoCompare, said: A manic upward swing led by the herd will be followed by a downturn as the emotional sentiment changes. A lot of traders have been waiting for this large correction.
Analysts said the dramatic moves in the runup to the end of 2017 meant that it was difficult to predict what would happen in the new year when trading volumes are expected to rise.
Lukman Otunuga, research analyst at financial firm FXTM, said: The aggressively bearish price action witnessed this week may prompt investors to start questioning if bitcoin will recover from the selloff or remain depressed moving into the new year.
Regulators have been sounding a cautious note about bitcoin, which is not regulated and is controlled by a network of computers that update all transactions which take place on a variety of trading platforms around the world. It only exists digitally and is mined using mathematical equations.