Market volatility helps Bitcoin break through $8,000 barrier
Bitcoin broke through the $8,000 mark for the first time in ten months yesterday to extend a rally in which its price has more than doubled this year.
The world's most popular digital currency rose as high as $8,327, up by $397.14, or 5 per cent, before falling back to $7,909.75 by lunchtime in New York. Bitcoin began the year at $3,689.56.
Digital or cryptocurrencies such as bitcoin exist only as strings of computer code. The price of bitcoin almost reached $20,000 in December 2017 at the culmination of a buying frenzy when millions of private investors chased its rising value, which was below $1,000 in January that year.
However, the price fell to less than $10,000 by the end of January last year and went below $3,500 in December.
The resurgence of bitcoin this year does not appear to have been triggered by any particular event.
David Siemer, chief executive of Wave Financial, an investment firm that focuses on digital currency technology, suggested that bitcoin's recent rise was connected to stock market volatility. "It's a natural hedge," he said.
"It's a non-correlated asset with the stock market and it's proven that a lot of times."
Median assets under management at cryptocurrency hedge funds stood at $4.3 million at the end of March, up from $1.2 million in January last year, a report by PWC, the professional services firm, and Elwood Asset Management showed. About 150 cryptocurrency hedge funds managed $1 billion in assets between them.
Henri Arslanian, cryptocurrency leader for PWC, said: "The crypto hedge fund industry today is probably where the traditional hedge fund industry was in the early 1990s. We expect the industry to go through a rapid period of institutionalisation and implementation of sound practices over the coming years."
Bakkt, a venture backed by the owner of the New York Stock Exchange, said on Monday that it would soon begin testing bitcoin futures.
Ether, the second most popular digital currency, was up by $17.16, or 8.2 per cent, to $209.39 yesterday. XRP, the third most traded, was up 19.9 per cent, to $0.40134.
On Monday Bitcoin surged to a tenmonth high after a bullish price forecast from an investment bank and a string of bumper trades over the weekend. Canaccord Genuity predicted that bitcoin was on a path back towards $20,000 by March 2021 because it was following price trends seen in previous booms.
Digital currencies are notoriously volatile and institutional investors have largely steered clear of them. Financial and consumer watchdogs advise less experienced investors not to trade digital currencies because of the volatility and risk of accounts being hacked.