The price of bitcoin surged through $10,000 on Wednesday, adding to its ten-fold jump in value this year and fueling a debate as to whether the virtual currency is gaining mainstream acceptance or is merely a bubble waiting to burst.
But as soon as bitcoin went through $10,000, it surged past $11,000, only to plummet from those lofty levels. The cost of buying one bitcoin as measured by the website Coindesk was hovering around $9,800, and was as low as $9,300 on Wednesday afternoon. A price of one bitcoin had been roughly $1,000 at the beginning of the year.
The vertiginous rise in the price of bitcoin and other virtual currencies this year has divided the financial community on their merits and whether — or when — the value might come crashing back down.
The CEO of JPMorgan Chase has called bitcoin a “fraud,” as it is not based on anything other than software code and is not backed by any monetary authority.
Other executives, including International Monetary Fund chief Christine Lagarde, say virtual currencies should not be dismissed and could have useful applications, such as a means of payment in countries with unstable currencies.
Some countries, like China, have tried to stifle bitcoin exchanges. But in a move that gave further credibility to the virtual currency, the U.S. exchange operator CME Group said last month that it plans to open a futures market for the currency before the end of the year, if it can get approval from regulators.
Bitcoin uses peer-to-peer technology to operate with no central authority or banks; managing transactions and the issuing of Bitcoins is carried out collectively by the network. Bitcoin is open-source; its design is public, nobody owns or controls this cryptocurrency and everyone can take part. Bitcoin price grew significantly within a short period of time making the BTC/USD pair quite popular among active traders and investors. Through many of its unique properties, Bitcoin allows exciting uses that could not be covered by any previous payment system.
Despite skepticism from some top finance executives about bitcoin’s rise, experts say the latest gains appear to have been fueled by expectations that big professional investors — such as hedge funds and asset managers — could soon pour money into the currency.
Even a small portion of the cash managed by major funds “would make a dramatic impact on the bitcoin market,” said Thomas Glucksmann, head of marketing at Hong Kong bitcoin exchange Gatecoin.
The cryptocurrency has been gaining more legitimacy in some parts of the financial industry.
From early next month, investors should be able to trade bitcoin futures via the Chicago Mercantile Exchange, which is likely to help bolster the currency’s reputation among mainstream investors. Futures allow traders to bet on the future price of assets like currencies, metals and agricultural commodities.
The backing of a major exchange is encouraging “institutional investors to actually pop their crypto cherries,” Glucksmann said. He expects more professional investors to move money into bitcoin if it breaches $10,000.
Shane Chanel, an adviser at investment firm ASR Wealth Advisers, predicts bitcoin will hit $12,000 within the next six months.
“Greed will continue to drive the price over the short term,” he said. But he warned that any setbacks in the introduction of bitcoin futures over the next few weeks could prompt a “dramatic short-term tumble.”
Bitcoin’s path toward $9,500 hasn’t been smooth. It’s suffered periods of major volatility along the way.
In September, it plunged as much as 20% after the Chinese government cracked down on offerings in the digital currency, prompting bitcoin exchanges to close their doors.
Earlier this month, it plummeted by up to 30% within the space of a few days, before quickly bouncing back, after it appeared traders were switching to rival cryptocurrencies.
Cryptocurrencies are virtual “coins” that are “mined” by computers completing complex algorithms. Bitcoin is the most famous and widely used one.