Bitcoin just surged past $8,000 on Tuesday, hitting its highest mark since last July. It tapered off slightly by mid-afternoon, but is still trading at its highest level in nearly a year.
What’s going on?
Bullish experts say the strong showing could signal that bitcoin has a future as a worthy investment opportunity. But the currency’s volatile and controversial history has prompted plenty of skepticism.
Bitcoin has typically been regarded as risky, said Dan Held, co-founder of Interchange, a company that advises businesses on how to manage their crypto assets. But he said the currency’s resurgence might be the first inkling that it holds weight as a “risk off” trade — an investment treated as a safer bet when markets are tumultuous, like bonds or gold. After all, the currency skyrocketed in value Monday when the Dow plunged 617 points, perhaps suggesting that investors turned to bitcoin as a safe haven asset.
“It’s bitcoin’s moment to shine when people momentarily give up on the government or the banking system,” Held added.
That could have been because Monday’s bitcoin trading frenzy spurred additional investor interest, said James Putra, head of product strategy at brokerage firm TradeStation Crypto.
“When the market started to rise, it drew more people in,” Putra said. “Larger players started to take bites out of the marketplace; it’s a common and familiar approach.”
Still, bitcoin has been here before. It hit $20,000 in December 2017 before crashing the next year. Some experts called the downturn a correction after a period of “speculative mania.”
The currency also faced accusations of price manipulation: Two academics at the University of Texas at Austin studied the possibility bitcoin had been manipulated and said they found evidence that it had been during its massive 2017 run-up. The shadow of price manipulation continues to loom over bitcoin.
“Manipulation could very well be behind the recent market moves. To act like bitcoin and crypto currency prices are purely driven by supply and demand of little traders … ignores the specific mechanics of this marketplace,” said John Griffin, a finance professor at the University of Texas at Austin and one half of the duo that penned the paper on price manipulation last year.
“It would not be a stretch nor surprising to find that manipulative activity is behind the recent runup when the underlying market mechanics are similar to before,” Griffin added.
Griffin isn’t the only one with that suspicion.
“I don’t think anyone really knows what this is due to,” said Tim Massad, former chairman of the US Commodity Futures Trading Commission, speaking about the latest rally. “But you worry that manipulation could be a contributing factor given the lack of regulation and transparency in this market compared to other markets.”
Massad said he lauded the Securities and Exchange Commission for stepping up oversight of cryptocurrency, but added that “you still have gaps in regulation.”
Another, simpler explanation for the price rise: It’s Blockchain Week, an unofficial holiday for bitcoin. The event, which is also called Consensus 2019, draws in more buyers for bitcoin and other major currencies, according to Lennon Sweeting, the director and head trader of Coinsquare, a Canadian cryptocurrency trading platform.
There’s also the fact that bitcoin and blockchain — the underlying technology that acts as a public ledger — have steadily become more mainstream. JPMorgan Chase, the nation’s largest bank, announced a new digital coin earlier this year. JPMorgan and Microsoft recently announced plans to partner and expand on blockchain platforms. And ICE, the owner of the NYSE, launched a futures exchange for bitcoin and other cryptos.
All of that could make the digital currency and its technology appear more credible to investors. And it gives bitcoin’s backers a reason to remain optimistic.
“The $10,000 mark remains firmly in sight over the coming months,” said Vaibhav Kadikar, founder and CEO of a decentralized prediction market platform, CloseCross. “And the possibility of surpassing the previous high in the coming half year still remains.”