Bitcoin rocketed from below $13,000 to above $16,000 in less than 24 hours
The price of bitcoin seesawed yesterday as fears grow that a colossal bubble in the online currency is about to burst.
It rose from below $13,000 to over $16,000 in under 24 hours, in a wild day’s trading.
Many experts have compared it to the frenzy for tulip bulbs in the 17th century which saw prices climb 2,200 per cent in four months before crashing. By comparison, bitcoin had risen 1,800 per cent this year at its peak.
The mania has prompted Royal Bank of Scotland chairman Sir Howard Davies to call on central banks around the world to protect savers from disaster.
He said they are failing to act out of fear they will be labelled technology-hating dinosaurs.
Bitcoin started the year at $1,000 and has doubled in less than a fortnight. It was trading around $16,000 at the time of going to press.
Experts are now warning that its rise is completely unsustainable and unprecedented in the modern era. Davies, 66, compared the currency to the vision of hell portrayed by Italian poet Dante Alighieri.
He called for warnings from the Bank of England, the European Central Bank, the US Federal Reserve and the US Securities and Exchange Commission.
Davies branded bitcoin a ‘frothy investment bubble’ and said: ‘Put up the sign from Dante’s Inferno – “Abandon hope all ye who enter here” – I think that’s probably what’s needed.
‘They’re all very nervous about not wanting to seem to be Luddites, saying that all these investments are bad things.’
In a frantic 20 minutes on the Coinbase exchange yesterday, the currency soared $2,000 to more than $19,000, then plummeted back to $15,000.
Many experts have compared Bitcoin’s rise to the frenzy for tulip bulbs in the 17th century which saw prices climb 2,200 per cent in four months before crashing
The surge has been driven by bitcoin’s fast-approaching debut on two Chicago exchanges. CME Group and Cboe Global Markets will allow punters to bet on its future price without buying it, and their involvement is seen as a key step towards bitcoin entering the mainstream.
But although money is pouring in based on the expectation of further growth, it is also possible that the value of bitcoin will drop sharply if hedge funds are able to start short-selling it – betting the value will fall.
As happened at vulnerable banks during the financial crisis, this could become a self-fulfilling prophecy and trigger massive drops.
Davies said that it is ‘a very risky move in reputational terms’ for exchanges to offer bitcoin trades. ‘I’m not quite sure they know enough about what it is,’ he said.
There has been similar criticism from Wall Street banks, including JP Morgan and Goldman Sachs, which warned in a joint letter about a lack of ‘public transparency’ by the Chicago exchanges.
Bitcoin was initially supposed to be a rival to traditional currencies such as the pound, but its surging price means many analysts now see it more as a commodity, like gold.
Few stores accept bitcoin and those which do – such as Old Shoreditch Station coffee shop in the heart of London’s tech district – say the number of transactions is small.
Yesterday, online video game retailer Steam stopped taking bitcoin because it is so volatile. Economists have described it as the biggest bubble since tulip mania gripped Holland, which left thousands penniless.
Ken Griffin, the billionaire boss of hedge fund Citadel, said: ‘These bubbles tend to end in tears. And I worry about how this bubble might end.’
He is the latest in a long line of experts to raise concerns. JP Morgan bank boss Jamie Dimon has called the currency a fraud.
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