Bitcoin, the digital currency whose anonymity attracted drug dealers and tax evaders, is on a roll again, according to a Financial Times report But after a renewed price spike that echoes its first speculative bubble three years ago, even many of the currency’s backers warn that another sharp correction is likely to follow.
Tech entrepreneurs and venture capitalists also jumped on the bandwagon, betting that it would become a platform for a disruptive new financial services industry.
The currency’s price later fell back more than 80 per cent from its high, after a cyber-heist from its biggest exchange and growing attention from regulators.
Since then, most people in the financial world have written it off as a failed experiment in digital finance, even though the idea behind a core part of its technology — the blockchain, a distributed ledger that simplifies transaction processing — has since moved across into mainstream finance.
However, after a 31 per cent jump since the start of December, bitcoin has more than doubled this year, pushing the value of the outstanding currency to $16bn. Prices being quoted on the currency’s unregulated exchanges, though still some 14 per cent below the peak, are higher than at any time besides a handful of days during the first, frenzied boom.
The digital currency was at about $975 on Friday.
The fact that bitcoin has revived despite the wave of bad publicity has fed hopes that it will eventually fulfil the ideals it once aroused, of a digital currency beyond the influence of national governments. “It’s incredibly resilient,” said Adam White, head of GDAX, an exchange run by the US digital currency company Coinbase.
Tim Draper, a venture capitalist who was an early backer, claimed the recovery showed bitcoin was becoming “a viable alternative when people’s confidence in their own government’s currency waivers.” He added: “The world will be a freer, wealthier, and smoother operating place as we apply more and more uses to bitcoin and the blockchain.”
Critics warn that the bitcoin bounce has all the characteristics of a new speculative bubble and that its wild volatility, along with the idealistic hopes of supporters, make it more akin to an overhyped tech stock than a practical currency.
Prices are largely set in China, where more than 90 per cent of the world’s trading takes place, and even backers say it is difficult to understand the dynamics behind the currency.