Bitcoin soared to its highest value since January last year yesterday before crashing back down again in a rollercoaster few hours that were dramatic even by the standards of the world’s biggest digital currency.
Having touched $13,850 last night, up more than 17 per cent on the day and 250 per cent on the year to date, it suddenly cut its gains and sank to $11,698.20 before recovering to $12,220.43 in New York, up 3.1 per cent.
It also meant that predictions of a new bitcoin boom-and-bust were rapidly justified. As investors, inspired by Facebook’s plans to launch its own cryptocurrency, started to send the price up, nervous analysts observed that the sharp rise “feels a lot like last time”.
Bitcoin soared from $960 in January 2017 to a peak of almost $20,000 the following December, before slumping to just over $3,000.
As analysts searched for a reason for the sudden price drop last night, some pointed to a brief but widespread outage on Coinbase, a cryptocurrency exchange, as its portals, including its website and app, went down.
Cryptocurrencies exist as strings of computer code and have no physical form. As bitcoin’s volatility was laid bare last year, some regulators likened the market to an unregulated “wild west”. Facebook — which also owns Whatsapp and Instagram — unveiled plans this month to launch libra, a cryptocurrency, next year. Its development will be overseen by a consortium of payments and technology firms such as Visa, Mastercard and Vodafone.
Garrick Hileman, research associate at the London School of Economics, said that bitcoin’s rise was being driven in part by supply being set to tighten next May when “the reward for mining bitcoins will get cut in half”. He told CNBC: “At the same time, demand has been rising, in part . . . because of the interest in Facebook’s stable coin.”
Craig Erlam, at Oanda, a foreign exchange broker, said: “While I understand the excitement that a company like Facebook has launched its own coin, this just feels a lot like last time, and we all know what happened then.”