Bitcoin remained above the $4,000 mark after surging past the milestone on Saturday as a splintering in the market this month prompted a record run for the cryptocurrency.
The digital currency hit a high of $4,215 on Monday and Bitcoin’s 45 per cent surge in August comes after the currency split in two following an ideological clash and as demand tested inbuilt limits on the ability to process payments.
Known as bitcoin cash, the breakaway staged its trading debut on the start of the month. The new version is upgraded to handle many more transactions a minute than the original and is now worth about $5bn on the market.
Yet, rather than skim value from the original currency, as its creation might have been expected to in an efficient market, the splintering has led to an explosion in the price of the original.
Demand for bitcoin has taken off as start-up companies have raised money via “initial coin offerings” (ICO) by selling digital tokens or coins, such as ether or bitcoin, that allow investors to use the software or service provided by the start-up.
But serious investors have raised questions over how realisable these prices are in practice.
Some argue that it is one thing to put a price on a virtual asset and trade it within a close-knit community that believes all their virtual assets are equally valuable, and another to see it hold that value in the real world.
While some real-world trading against fiat currencies goes on in bitcoin, it pales into insignificance compared with the recent explosion in trading against “alternative” cryptocurrency coins, where self-dictated valuations rule the roost. That, argue some, is not a stable underpinning for any price explosion.
And market structure experts were, however, beginning to pick up on the potential liquidity issues at hand.
Writing for trading and market structure specialist publication TabbForum, Zohar Hod, chief executive of TruePTS, a post-trade derivatives platform, warned: “The problem is that there are too many currencies.
“Without enough liquidity, we will see great participation by buyers with no support from market makers and no buyers for the cryptocoins that the ICO company wants to convert into flat cash.”
He added: “Without liquidity, the ICO market is basically a pump-and-dump scheme. I am not suggesting that the ICOs are all like junk/penny stocks but I will suggest that, without enough liquidity, what we will see is great participation by buyers with no support from market makers and no buyers for cryptocoins that the ICO company wants to convert into flat cash.”
Bitcoin bulls and promoters, however, remained indignant. Max Keiser, the provocative RT talk-show host and long-time bitcoin crusader, predicted $5,000 would be the next target level for bitcoin.
This, he noted on Twitter, would be driven by panic buying by the world’s affluent who were no longer willing in the face of “rising war tensions and central bank malfeasance” to wait and see if bitcoin was a viable haven alternative.
“FOMO [fear of missing out] elephant billionaire dance begins now — $10tn in idle cash looking for some action,” he tweeted.