Is bitcoin back? Cryptocurrency passes US$16,000 as rebound begins

PUBLISHED : Wednesday, 27 December, 2017, 3:48am
UPDATED : Wednesday, 27 December, 2017, 10:59am

Bitcoin rallied past US$16,000 on Tuesday as traders of the world’s biggest digital currency sought to draw a line under its roller coaster five-day slump.

The tokens rose 16 per cent to as much as US$16,039.51, the biggest gain on a closing basis in more than two weeks and the first in six days. Rival currencies litecoin and ethereum were up 4.4 per cent and 2.6 per cent, respectively, data showed.

The gains will be a welcome relief for cryptocurrency bulls, after bitcoin declined 26 per cent in the five days through Monday in what was seen as a major test for the nascent digital currency industry.

This resurgence suggests that, even as financial authorities issue warnings about the risks of a bubble in the asset class, investor interest remains intact – for now, at least.

“The most important question facing it is whether the recent price correction will prove to be what market participants refer to as ‘healthy’,” Mohamed El-Erian wrote on Tuesday.

In other words, he asked, will the correction be one that shakes out “excessive irrational exuberance, provides for the entry of institutional investors, encourages the development of market-deepening products, and widens and balances out the investor base and the product offering”?

The answer to that question may determine bitcoin’s future as a debate rages over the sustainability of the rally that has seen it gain more than 1,500 per cent this year.

Bulls argue that the nature of the cryptocurrency and the blockchain technology behind it is a game changer for the world of finance, while bears say it has no intrinsic value and price moves display the hallmarks of a speculative asset bubble.

Bitcoin’s all the rage with millennials but it’s certainly no passing fad

Amid bitcoin’s wild price ride, attention is also increasingly turning to rival digital tokens. Since the largest cryptocurrency hit a record of US$19,511 on December 18, it has actually underperformed peers such as ripple and ethereum.

Bitcoin is the crypto benchmark, but not the best representation of the technology, Mike McGlone, Bloomberg Intelligence analyst, wrote in a column on Sunday.

A proper focus for institutional investors should be the broader market, including “forks” and second-generation – or 2G – offshoots that address bitcoin’s flaws, he said.

When the frenzy subsides, 2Gs should continue to gain on bitcoin, according to McGlone. “Ethereum appears prime to assume benchmark status, though bitcoin forks ripple and litecoin are the primary up-and-coming contenders,” he said.