08 Dec, 2017 Chaotic trading marks new surge in bitcoin price
Cryptocurrency exchanges struggle to cope after flood in speculation
Bitcoin prices on its biggest exchanges diverged wildly on Thursday in a session that sharply exposed the fragile trading infrastructure for the nascent cryptocurrency.
In one wild 20 minute period, the price of bitcoin soared $2,000 per coin to more than $19,000 only to drop to $15,000 on the Coinbase trading venue. The frenzied demand left other exchanges struggling to cope, and the difference in prices quoted on other venues for the same bitcoin asset was as much $4,000.
Bitcoin was trading at $15,900 on the leading global digital currency exchange, Bitstamp, at 03.47 GMT, down 4.2 per cent on the day.
“People are looking at a video game as a regular market. And it’s clearly not, otherwise it wouldn’t be where it is already,” said Walter Zimmermann, technical analyst at ICAP TA. “It’s beyond abnormal, it’s unprecedented. Every other commodity has natural sellers.”
The tumult came only days before the widely-anticipated first bitcoin futures contracts are due to start trading on Cboe Global Markets, the US derivatives exchange. Some investors are betting their introduction will temper the volatility in bitcoin’s price, by allowing traders to hedge their positions in the market.
On top of the price swings, the companies that service bitcoin trade came under severe pressure as demand for the digital currency continued to escalate. People are looking at a video game as a regular market . . . It’s beyond abnormal, it’s unprecedented Walter Zimmermann, ICAP TA Bitfinex, one of the largest bitcoin exchanges, said early on Thursday that it had been under “significant” denial-of-service attacks — which aim to jam servers by flooding them with requests — for several days and that ”the attack has recently worsened”.
The exchange said later in the day that it had returned to normal operations. Peter Smith, chief executive and co-founder at Blockchain.com, which provides “wallets” used for holding digital currencies, appealed to customers to “hang in there” as the site was experiencing “record traffic levels and customer support tickets”.
IG Group, the UK’s largest online trading platform by market share, said it suspended trading of some bitcoin derivatives contracts “on and off” on Thursday, citing security risks associated with holding the cryptocurrency, after making a similar move when the price surged last week.
The trading glitches came on top of news that around 4,700 bitcoins — worth about $70m — had been stolen out of a digital wallet at NiceHash, a cryptocurrency platform, the latest in a long line of heists that have plagued bitcoin. Slovenia-based NiceHash told its users on Wednesday that its payment system was compromised and it had contacted the authorities.
Bitcoin developers have struggled to overcome the network’s capacity issues for many years. A spree of updates released earlier this year was supposed to help to ease the congestion burden but in the end only divided the community further, while spawning a doppleganger currency called “bitcoin cash”, currently trading at $1,272.
“If there’s a dominant marketplace, then maybe all liquidity will go to one place and we will have more of a uniform bitcoin price,” said Matt Brief, head of dealing at IG Group. “At the moment, it’s a lot more subjective,” he added, noting an “interesting arbitrage opportunity” between exchanges.
Bitcoin has garnered increased mainstream attention over past months thanks to the meteoric rise in its price. It traded at the end of last year at about $1,000 to the coin. Analysts have pointed out, however, that it is difficult to judge the reasons why the digital currency moves the way it does on any given day, and have warned that it resembles an asset price bubble
“Given that bitcoin has no yield, no rate setting central bank, no real credit market and is not tied to an economy, our normal means of valuation go out the window,” said Ranko Berich, head of market analysis at Monex Europe.