Bitcoin prices passed the US$8,000 mark Tuesday, the highest the cryptocurrency has been valued in more than nine months.
In the past 24 hours, the price of Bitcoin has surged from around $7,000 to $8,200. This is twice as much as it was trading for six weeks ago. Since the start of the year, Bitcoin’s value has increased more than 120 per cent, according to data posted on the website CoinDesk.
The rise of the digital currency is a contentious one. In late 2017, the Bitcoin frenzy led its value to reach an all-time high of over $20,000.
But its value came crashing back down in the new year and continued a steady spiral since. It still has yet to fully recover.
Why is Bitcoin rising?
There is no real fundamental explanation as to why Bitcoin hit a nine-month high.
But there is an ongoing blockchain and cryptocurrency conference in New York called Consensus, where big investors and influential market players have gathered to network and discuss the current state of the industry. Bitcoin has also rallied during previous Consensus conferences.
Some analysts also pointed out that Bitcoin‘s rally coincided with the escalating trade war between the United States and China, which eroded overall market-risk sentiment. But it is too soon to declare Bitcoin as a safe-haven asset, they said.
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“We can see that the bid for Bitcoin in this latest run has coincided with a big downtick in the value of the Chinese yuan versus the dollar,” Andy Brenner at National Alliance Securities told CNBC.
David Thomas of London-based cryptocurrency broker GlobalBlock said the breaching of a key $6,000 support level last week fuelled interest among investors.
But the real value of Bitcoin is difficult to determine because of two reasons: the currency is incredibly volatile, and trading practices may manipulate behaviour in unregulated exchanges, according to Andreas Park, an associate professor of finance at the University of Toronto.
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Park also explained that since the trading practices of Bitcoin are unregulated, the market is often subject to nefarious activities.
“There’s 60, 70, even 100 exchanges where you can trade cryptocurrencies of many different kinds. You could open one yourself. In contrast to the financial world, there is absolutely zero regulation,” Park said. In addition, there is a small group of people with a lot of stock in Bitcoin and other cryptocurrencies.
This, he said, often leads to a practice called “manipulative behaviour,” which refers to artificially inflating the price of an asset for personal gain.
Craig Erlam, senior market analyst at Oanda, told Market Watch that although there is no shortage of explanations for the recent Bitcoin spike, “none … are nearly significant enough to match the size of the leap we’ve seen.”
“The only thing that’s clear is that cryptos may be maturing in many ways, but price action hasn’t changed. Until it does, I struggle to see institutional investors wanting to get too involved. These big gain days look great and people are always attracted to the prospect of big gains, but last year showed us what the flip side of that looks like and it’s ugly.”
—With files from Global News’ Jessica Vomiero and Reuters