Bitcoin yesterday extended its 2019 gains to 271%, a climb of around $10,000, as it continued its rapid return to a stampeding bull market and edged towards $14,000. The cryptocurrency gained around 10% just over the Asian session yesterday, which had risen to 18% by the Wall Street session, as the market dynamic begins to resemble to 2017 ‘bubble’. That saw Bitcoin’s exchange value against the dollar move from $1000 in January to almost $20,000 by December.
Back in 2017, steadily impressive gains suddenly accelerated to a near $10,000 ‘melt-up’ in just 20 days before sliding back to under $3500 by the end of 2018. More than half of Bitcoin’s peak value was lost over the first weeks of 2018 in a dramatic bursting of what had become a speculative bubble. Yesterday’s high was the loftiest value Bitcoin has achieved since the popping of the 2017 bubble and over half of 2019’s gains have come since the beginning of May.
Why has Bitcoin come back and is it sustainable this time? One obvious catalyst is renewed public interest in cryptocurrencies sparked by Facebook’s June 18th announcement that the social media goliath will launch its own next year – Libra. But Libra, if it takes off, could be viewed as competition to Bitcoin, which has never managed to achieve any significant mainstream traction as a ‘currency’.
Libra and other theoretical new cryptocurrencies built on blockchain technology and using mechanisms that have learned and evolved from the bottlenecks that have hindered Bitcoin – slow transaction times, energy hungry digital security system, highly volatile value – could lead to its extinction. Alternatively, a successful Libra could provide a boost by mainstreaming and normalising cryptocurrencies – lending Bitcoin validity. The original cryptocurrency could, if a majority in its peer-2-peer network agree, update its blockchain technology or wider ‘protocol’ to solve some of its current practical limitations. Or it could become more like a digital commodity than a currency.
The other significant catalyst to Bitcoin’s return is growing evidence of interest from institutional investors. Over the past couple of years, including the year and half it has spent in the doldrums, cryptocurrency trading infrastructure has been building up behind the scenes. ICE, the owner of the NYSE and several other major financial exchanges around the world, will soon launch Bakkt, a regulated Bitcoin futures exchange.
One advantage Bitcoin does have over Libra is that it is viewed as a genuinely independent, community-owned and driven p2p cryptocurrency. While Facebook is establishing an independent subsidiary and governing body consisting of corporate backers, finance and tech experts and NGOs, it will still be basically controlled by a central authority. And that central authority will be viewed as Facebook – a tech giant that has lost a lot of trust in recent years as a result of its apparently laissez-fair attitude to personal user data and role in the spread of misinformation.
Bitcoin’s value has dipped back below $12,500 since Wednesday’s surge but the pace of its recent gains might also again be warily interpreted as a new bubble. Then again, the number of Bitcoin in circulation is capped so any significant volume being bought by big investors speculating on a comeback could be expected to lead to big jumps in value. Bitcoin could be back. And this time not go away again. Or it could be just one final hurrah for a crypto dinosaur set to be overtaken by newer, nimbler evolutions of the blockchain technology Bitcoin introduced.