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Bitcoin

Tequila shots greet bitcoin crossing US$10,000, but some fear coming hangover

Investors in Beijing and Hong Kong celebrate as the digital currency surpasses US$10,000, but while many think the rally has legs some are getting cold feet

PUBLISHED : Wednesday, 29 November, 2017, 11:54am
UPDATED : Wednesday, 29 November, 2017, 10:02pm

It was a working day for most people but that did not matter at the Taco Bar in Beijing’s Sanlitun district, where a group of bitcoin investors knocked back tequila shots to celebrate the digital currency crossing the US$10,000 mark.

In Hong Kong, beer and wine flowed freely at a gathering in Soho as a group of bitcoin enthusiasts met to cheer on the rally, which has seen prices surge more than tenfold since the start of the year.

For bitcoin’s many followers, whether yesterday’s celebration will turn into today’s hangover depends largely on whether they give in to fear or respond to greed.

“Once it hit US$3,000 it was clear that this would go up fast,” said Leonhard Weese, president of the Bitcoin Association of Hong Kong, who attended the meetup in Soho. “I guess it will go up even faster from here until the bubble pops.”

After hitting US$10,000 Wednesday morning, bitcoin gained more than 4 per cent for the day.

Bitcoin is the most famous of the family of cryptocurrencies that has divided governments, central bankers and investors into opposing camps, with its proponents envisioning an alternative to, if not future replacement for, fiat money. Its critics are less sanguine, calling bitcoin the latest in a long line of speculative bubbles.

Hong Kong-based Dave Chapman, managing director at Octagon Strategy, a liquidity provider for large block trades of bitcoin and other cryptocurrencies like ether and altcoins, predicts the price of bitcoin could reach US$100,000 by next year.

He said the surge will be driven by mainstream acceptance, interest from corporates and institutions, and on-going global regulatory clarity – with the exception of China.

“There is admittedly a lot of speculation in this market, but there is fear of missing out,” he said. “It’s digital gold...a safe haven in times of political and economic uncertainty.”

Bitcoin closing in on US$10,000 as hedge funds pour into cryptocurrency

Money has been pouring into virtual currencies as investors chased the rally and searched for alternatives to equity and property markets, which are plumbing new heights in major markets. Seventy-five per cent of funds invested in virtual currencies were started this year, managing between US$2 and $3 billion in total, according to London-based research firm Autonomous Next.

Some investors have decided to get out while still ahead.

“Be fearful when others are greedy and greedy when others are fearful,” said an investor in the steel-producing city of Anshan in China’s northeastern Liaoning province, who would only give his family name He.

“The more it rockets, the more I wonder what the real value is to support such prices,” said He, who sold all of his bitcoin holdings earlier this month. “The party will be over when the price is too high to draw new capital and that’s when plunging will be the only option left.”

As of 2.42pm Wednesday in Hong Kong, bitcoin was trading at US$10,399 on the widely quoted Luxembourg-based Bitstamp exchange.

As with other digital currencies including ethereum, bitcoin uses blockchain technology, which stores transactions in transparent, shared databases. This transparency protects transactions from deletion, tampering and revision and eliminates the need for central exchanges.

While there are alternatives that claim to be a superior blockchain technology when compared to bitcoin, Chapman said bitcoin has the first mover advantage.

“The brand, the network effect and it’s the most battle hardened and proven cryptocurrency right now. It might not maintain the largest market cap in five years, but for now it is unsurpassable,” he said.

Virtual currency trading has been under regulatory scrutiny globally. In September, China’s central bank banned fundraising through digital currencies, calling the practice illegal. The People’s Bank of China (PBOC) said that 90 per cent of initial coin offerings launched in China were found to be fraudulent. In the same month, China asked all local bitcoin exchanges to halt trading altogether.

Joseph Wang, a Hong Kong-based bitcoin investor and adviser to hedge funds on digital currencies, has no plans to sell his bitcoin holdings for now.

“It is just looking at the long term. Bitcoin is going to change the world,” Wang said. “In the short term, it will crash a lot. You shouldn’t buy with money you can’t afford to lose.”