Bitcoin price exceeds gold for first time on expectations of ETF

The price of bitcoin soared to a record high and exceeded a troy ounce of gold for the first time as cryptocurrency traders speculated on the establishment of the first-ever bitcoin-based exchange traded fund.

Bitcoin continued to advance on Friday, trading 2.1 per cent higher to its historic high of US$1,287.5 after the digital currency reached parity with the per-ounce spot price of gold on Thursday at US$1,265.

“The bitcoin ETF proposal in the US could be a catalyst for the recent price rally,” said Cheung Chun-yin, a PwC China fintech partner. The proposal for a bitcoin ETF is under discussion with the US Securities and Exchange Commission (SEC), according to Bloomberg. A decision is due by March 11.

Bitcoin trading, which is evolving and starting to resemble the traditional financial market, is being embraced by more professional investors as demand is not only coming from China but all over the world, Cheung said.

The emergence of initial coin offering (ICO), in which bitcoins are raised for a new blockchain venture, is a similar model to the initial public offering in a stock market, providing a further example of the popularity of the digital currency, Cheung added.

Chinese bitcoin investors see holdings partly frozen

“I don’t think China traders should be behind the rally of bitcoin this time,” said Cheung, who believes the rally could be partially reflected in current pricing since one bitcoin costs more in the international market than in China.

In contrast to its surging price, bitcoin trading volume softened, down to US$105 million on Thursday from this year’s high of US$234 million on January 5, driven by Chinese government efforts to curb speculation. China’s contribution to the volume also narrowed, from an historical high of 98 per cent to less than 30 per cent. “The speculative investment in the country weakened after the trading fee increased,” Chueng added.

The bitcoin market in China is extremely volatile and operates without mature regulation rules. In early January bitcoin rallied to a one-year high of US$1,129.9 but subsequently crashed 30 per cent to US$776.0 within one week.

On January 11, the People’s Bank of China announced that it had sent inspection teams to the country’s top three bitcoin trading platforms to scrutinise their operations after witnessing a market crash. It was the first regulatory move by China’s central bank that has publicly involved the virtual currency. Leveraged trading in bitcoins was halted in China nearly a week after the central bank launched its first-ever probe into bitcoin trading platforms.

Additional reported by Xie Yu