Bitcoin swings from bull to bear and back in a day
Cryptocurrency surged past $11,000 on Wednesday before falling to near $9,000
Eric Platt, Nicole Bullock and Joe Rennison in New York
After Lehman Brothers toppled in September 2008, it took 24 days for US stocks to slide more than 20 per cent into official bear market territory. Bitcoin, the new age cryptocurrency that has been breaking bull market records, did the same on Wednesday in just under six hours.
Investors and speculators watched the cryptocurrency rally to an all-time high of $11,434 — gaining 15 per cent in trading early in the day — before sinking as much as 21 per cent to $9,009 in volatile trading and then rebounding.
Bitcoin investors complained of outages and sluggish trade execution at some of the largest exchanges as the price whipsawed.
Early on Thursday morning in London showed that trading remained highly volatile, with bitcoin quoted at $10,395, having carved out an intraday range of $9,609 to $10,787.
At its $11,434 peak on Wednesday, bitcoin was up more than 12-fold for the year — or more than 1,100 per cent. The digital currency rose through both $10,000 and $11,000 levels for the first time, according to Bloomberg data.
The sharp rise in bitcoin has sparked analogies to past bubbles, from the tulip craze of the 17th century to the dotcom boom and bust at the turn of the millennium.
“We’re watching history,” said Rich Ross, the head of technical analysis at Evercore. “It is a classic bubble, and bubbles go up a lot. It is a mania and the best thing about it is you can’t value it, like trading technology stocks in the ’90s.”
The latest tumultuous trading comes as bitcoin has garnered increasing attention both for its meteoric rise this year and signs that it is moving from the periphery of finance towards the mainstream.
Nasdaq, the US exchanges operator, plans to launch bitcoin futures next year, a person familiar with the plans said on Wednesday, following similar plans by rival exchanges CME and CBOE.
The whipsaw trading does not appear to be scaring off existing traders or newcomers afraid they are missing out on the chance for quick, easy profits; in fact, it may be adding to the allure of being a part of the latest craze.
“Every three weeks it goes up, people take profits and then it goes down but money is still coming in so it will keep going up,” said David Drake, founder and chairman at LDJ Capital, a family office that invests in bitcoin.
Mr Drake thinks the cryptocurrency could hit $20,000 by the end of 2018. “It’s already hit $11,000 and it’s not even the end of 2017,” he said.
A slump in volatility in traditional asset classes to historic lows has also piqued the interest of the traditional trading community.
DRW of Chicago, one of the world’s largest proprietary trading companies, has about a dozen of its more than 800 employees buy and sell bitcoin at a subsidiary named Cumberland, which was established in 2014. Other companies have followed, including Jump Trading, DV Trading and Hehmeyer Trading + Investments, according to industry executives.
“It is not that it cannot go up more, but you have to expect the volatility that we saw today,” Mr Ross added. “In two weeks something has gone up more than 100 per cent so you have to expect the downside to be commensurate.”
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