Adherents claim it’s the currency of the future, skeptics see a major speculative bubble.
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But for the moment, bitcoin’s price shows no signs of retreating.
The global cryptocurrency zoomed past $11,000 on Wednesday to hit a record high for the sixth day in a row, surging more than $1,000 in just 12 hours. The price of a single bitcoin has soared more than 1,000 percent since the start of the year, adding another 15 percent on Wednesday alone.
One look at the price chart has fed fears a major bubble is forming and could be about to burst. But the recent price spike follows multiple warnings over the last 12 months that the virtual currency was nearing a peak.
Bitcoin’s fans argue that with a market capitalization of less than $200 billion, the digital currency could still be in its infancy if it begins to capture a bigger share of the world’s $200 trillion in traditional financial market assets.
More than 120 “cryptofunds” have launched, including some run by Wall Street veterans, according to financial research firm Autonomous Next. The CME Group and the Chicago Board Options Exchange have announced plans to offer futures contracts for the cryptocurrency.
Retail investors are also feeling bitcoin fever. The world’s largest bitcoin “wallet” provider, San Francisco-based Coinbase, signed up 300,000 new users between last Wednesday and Sunday, during the Thanksgiving holiday, Reuters reported, citing data compiled by Altana cryptocurrency fund manager Alistair Milne. It now counts more than 13 million customers.
Created in 2008, the digital currency uses digital encryption and a so-called blockchain database that records ownership and allows for quick and anonymous transfer of funds outside of conventional payment systems. But in the last few years, traditional payment platforms, including PayPal and Barclays Bank, have moved to accept bitcoin transactions.
The evidence suggests that few of the users are buying bitcoin to utilize 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,” said Garrick Hileman, a research fellow at the University of Cambridge’s Judge Business School.
“This is very much a bubble that will very much correct itself at some point and people need to be very careful.”