The price of bitcoin swung wildly Thursday, rising to more than $19,000 only to fall sharply within minutes, as both the euphoria and anxiety surrounding the virtual currency escalated just days before trading in bitcoin futures begins on a major U.S. exchange.
NEW YORK — The price of bitcoin swung wildly Thursday, rising to more than $19,000 only to fall sharply within minutes, as both the euphoria and anxiety surrounding the virtual currency escalated just days before trading in bitcoin futures begins on a major U.S. exchange.
The concerns about its volatility have led some Wall Street banks and trade groups to raise concerns about the potential implications of trading bitcoin. Banks also appear likely to limit customers’ access to the futures when they first start trading.
Bitcoin was valued at $17,167 as of 6 p.m. EST, according to large bitcoin exchange Coinbase, after briefly surging above $19,000 Thursday morning. At the start of the year, one bitcoin was worth less than $1,000.
Meanwhile, there are fresh concerns about the security of bitcoin and other virtual currencies after NiceHash, a company that mines bitcoins on behalf of customers, said it is investigating a breach that may have resulted in the theft of about $70 million worth of bitcoin. NiceHash said it will stop operating for 24 hours while it verifies how many bitcoins were taken.
Bitcoin’s wild swings occurred as Wall Street prepares for bitcoin futures to start trading on the Chicago Board Options Exchange on Sunday evening and on the Chicago Mercantile Exchange a week later. The futures are designed to reflect the price of bitcoin without an investor having to physically hold the currency, not unlike how oil, gold, copper or cocoa prices are determined by futures contracts.
Yet the dawn of futures trading has some parties on Wall Street concerned. The Futures Industry Association, which represents Wall Street banks, brokerages and clearinghouses, sent a letter to the Commodities Futures Trading Commission this week, saying the institutions should have been consulted before trading in bitcoin futures was approved.
The association’s members expressed concern that they could be on the hook for large sums of money if extreme volatility in bitcoin resulted in big losses for some customers.
Goldman Sachs, one of the nation’s biggest investment banks, said it will allow only a limited number of clients to trade the CBOE’s bitcoin futures when they launch next week. Bank of America will not allow clients access to the futures.
A person familiar with the matter said JPMorgan Chase will not allow clients access to the futures on the first trading day, and will make an evaluation after that based on what it sees in the futures market. The Wall Street Journal reported that Citigroup will also not allow clients access to bitcoin futures.
The futures signal more mainstream acceptance of the currency, but also open up bitcoin to additional market forces. Futures allow for the shorting of bitcoin — that is betting that the price of bitcoin will go down — which is difficult to do now. With the currency’s tremendous run up in price in recent days, it could become a target for those who doubt that it deserves its current lofty value.
The frenzy of interest and the rapid rise in the price of bitcoin has put significant strain on the major bitcoin exchanges. Coinbase, the largest bitcoin exchange, at one point tweeted that record-high traffic had caused interruptions to its service. Bitfinex, which trades several digital currencies including Bitcoin, tweeted out that it had suffered an unusual surge in traffic the last few days.
Bitcoin is the world’s most popular virtual currency. Such currencies are not tied to a bank or government and allow users to spend money anonymously. They are basically lines of computer code that are digitally signed each time they are traded.
A debate is raging on the merits of such currencies. Some say they serve merely to facilitate money laundering and illicit, anonymous payments. Others say they can be helpful methods of payment, such as in crisis situations where national currencies have collapsed.
Miners of bitcoins and other virtual currencies help keep the systems honest by having their computers keep a global running tally of transactions. That prevents cheaters from spending the same digital coin twice.
Online security is a vital concern for such dealings.
In Japan, after the failure of a bitcoin exchange called Mt. Gox, new laws were enacted to regulate bitcoin and other virtual currencies. Mt. Gox shut down in February 2014, saying it lost about 850,000 bitcoins, possibly to hackers.