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Monday, April 12, 2021

Bitcoin goes on wild ride and it may only get crazier

Fort Worth and the bitcoin

• Coinsource, a bitcoin ATM network, is based in Fort Worth.

• Tuur Demeester, an independent investor and commentator, is based in Fort Worth.

For more on bitcoin and digital currency:

Reinventing Money: The State of Cryptocurrency

A program from the Fort Worth Business Press on Wednesday, Jan. 24.

For more information: www.fortworthbusiness.com/events/cryptocurrency.html or contact Lauren Vay at lvay@bizpress.net

What’s a bitcoin worth? Lately nobody knows for sure, but the digital currency has taken some wild rides after bitcoin futures began trading on two U.S. financial exchanges late last year.

Digital currency prices wobbled Dec. 11 after South Korea, a hotbed for currencies like bitcoin, said it will consider a trading ban.

The country’s justice minister said South Korea is planning a ban, but the presidential office said later that a ban is under review. No policy changes have been made, and while the country’s justice ministry has taken a stern stance against the currencies, other agencies oppose an outright ban.

Also on Jan. 11, the Wall Street Journal reported that China ordered that bitcoin “mining” operations be shut down there.

Those were just the latest signs that regulators around the world are taking a harder stance on the currencies as their values skyrocketed.

Mining involves having computers solve complex mathematical problems to confirm transactions. Miners are rewarded with bitcoin.

The price of bitcoin slid 6 percent, to $13,939 as of 1:30 p.m. ET on Jan. 11, according to Coindesk. Ethereum, another popular digital currency, fell as much as 8 percent early on and was little changed from the day before at $1,248.

During 2017, the price of bitcoin surged from under $1,000 to almost $14,000 by the end of the year, and ethereum jumped from about $8 to $734. That has experts warning that both are speculative bubbles that could burst any time.

South Korea, which is also among the biggest bitcoin markets, has been looking for ways to regulate trading. In December, its financial regulator ruled out using bitcoin for derivate products such as futures.

Bitcoin futures began trading on two U.S. financial exchanges last month, but bitcoins themselves continue to be traded only on private exchanges, which are essentially unregulated.

Futures allow investors to make bets on what bitcoin’s price will do in the coming months and futures are traded in many kinds of commodities including crude oil, wheat and copper. The Commodities Futures Trading Commission recently proposed regulating bitcoin as a commodity.

Japan, the world’s largest market for bitcoin trading, is the only major advanced economy with a licensing system for digital currency intermediaries such as exchanges and payment providers.

Global regulators are also paying more attention to initial coin offerings, which allow startups to use the technology behind bitcoin, known as blockchain, to fund projects.

China banned those offerings last month, while the U.S. Securities and Exchange Commission stopped two planned offerings. There are no regulations over the creation and use of virtual currencies, and the nature of the transactions make them hard to trace.

Some companies are scrambling to associate themselves with digital currencies and the technology behind them in hopes of tapping the investor mania around them.

The stock of Long Island Iced Tea Corp. soared last month after the company said it plans to change its name to Long Blockchain Corp. The company said it wants to focus more on blockchain technology while continuing to make beverages.

Eastman Kodak more than doubled in value last week after it launched KodakOne and KodakCoin, which will allow photographers to register work that they can license and then receive payment.

Experts are warning that bitcoin is a bubble about to burst, but things might get crazier before it does. A lot of people have heard of bitcoin by now, but very few people own it.

“Bubbles burst when the last buyers are in,” said Brett Ewing, chief market strategist for First Franklin. “Who are the last buyers? The general public, unfortunately.”

Ewing said 40 percent of bitcoin belongs to just 1,000 people, and hedge funds and other major investors are going to start buying it soon.

But those funds may buy bitcoin and also protect themselves by placing bets that it will fall. Retail investors may just buy it only to see it fall.

“I think investors should approach it with caution and I think many people will dive into it not understanding what it is,” he said.

As bitcoin skyrocketed this month, the volume of trading was unprecedented as investors hoping to catch a ride up piled in.

Prices have fluctuated so rapidly that the most recent rally only returned the price of bitcoin only to where it was trading two weeks earlier.

The volatility has created a circus-like atmosphere. Some companies have added the word “bitcoin” or related terms to their names to get in on the action. The craziest thing is, it’s worked.

Long Island Iced Tea Corp. until late December known for its peach-, raspberry-, guava-, lemon- and mango-flavored drinks.

Then, the company announced a radical rebranding. It’s changing its name to Long Blockchain Corp., shifting its primary focus from iced tea to “the exploration of and investment in opportunities that leverage the benefits of blockchain technology.”

Blockchain is a ledger where transactions of digital currencies, like bitcoin, are recorded.

Shares in Long Island Iced Tea soared 200 percent in one day.

The Farmingdale, New York, company did what investors are doing, hitched a ride on a currency that raced from less than $10,000 at the end of November to almost $20,000 in late December. And it cost less than $1,000 at the beginning of the year.

The rise of price of bitcoin, which is still difficult to use if you actually want to buy something, has led to heated speculation about when the bubble might burst.

The currency has been, if nothing else, highly elastic, bouncing back every time it crashes, which occurs about once every quarter.

It fell 11.5 percent over two days in early December and 21.5 percent over five days in November.

Curiosity has now driven bitcoin to the futures market, where investors bet on which direction it will go.

Bitcoin futures started trading on two major exchanges — the CBOE and CME — in December.

If people get burned, it won’t be because they were not warned.

The Securities and Exchange Commission put out a statement in late 2017 warning investors to be careful with bitcoin and other digital currencies. The Commodities Futures Trading Commission has proposed regulating bitcoin like a commodity, similar to gold or oil.

Financial Industry Regulatory Authority, a financial watchdog, issued a similar warning recently.

– the Associated Press

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