Bitcoin zoomed past US$11,000 to hit a record high for the sixth day in a row on Wednesday before falling back sharply, heightening concerns about a bubble in the cryptocurrency.
After soaring more than 1,000 percent since the start of the year, bitcoin rose as much as 15 percent on Wednesday, but it later fell to US$9,500, down 3.7 percent on the day on Luxembourg-based digital currency exchange Bitstamp, Reuters reports.
Bitcoin topped US$10,000 for the first time in early Asia trading Wednesday, before surging above US$11,000 less than 12 hours later to reach US$11,395.
“As many seasoned traders know all too well, anything that rockets higher, tends to fall down faster when the time comes, and the time will come,” James Hughes, chief market analyst at FX broker AxiTrader, told Reuters.
Bitcoin’s rapid ascent has led to countless warnings that it has reached bubble territory. But the warnings have had little effect, with dozens of new crypto-hedge funds entering the market and retail investors piling in.
London-based Blockchain.info, one of the biggest global bitcoin wallet-providers, told Reuters that it added a record number of new users on Tuesday, with more than 100,000 customers signing up, taking the total number to more than 19 million.
The evidence suggests that few of the users are buying bitcoin to use it as a means of exchange, but are speculating to increase their capital.
“What’s happening right now has nothing to do with bitcoin’s functionality as a currency – this is pure mania that’s taken hold,” Garrick Hileman, a research fellow at the University of Cambridge’s Judge Business School, told Reuters.
Hileman, who last week gave a lecture to the Bank of England on the risks of bitcoin and other cryptocurrencies, also flagged the risk of the whole market collapsing entirely.
“There’s always the possibility that some fundamental cryptographic flaw that we can’t solve craters the whole space, or that regulators unite and decide this represents systemic risk and actually could trigger the next financial crisis,” he said.
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