Bitcoin Rebounds on Wednesday
- By Jacob Maslow
Bitcoin rebounded on Wednesday, soaring to over $8,000 after dipping below $6,000 earlier this week.
While the cryptocurrency hit $8,562.93 intraday, it still remains far below its December high of $19,000. Bitcoin futures for February on the Chicago Board Options Exchange increased 9% to $8,240. Futures on the CME gained 10% to reach $8,285.
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The gains came after Tuesday's Senate Banking Committee hearing on virtual currencies. The Commodity Future Trading Commission and Securities and Exchange Commission emphasized the need for consumer protection, but they did not call for a ban on cryptocurrency development. The chairman also stated that Treasury Secretary Steven Mnuchin is working on bringing together federal agencies to coordinate regulation in the industry.
Bitcoin dipped to below $6,000 before the meeting, hitting its lowest point since November. The dip also came as U.S. stocks plunged.
Other cryptocurrencies were trading higher on Wednesday morning. Bitcoin cash was up 4.8%, Ethereum gained 5.6% and Ripple rose 2.3%.
Despite the gains, bitcoin is down almost 17% for February and down 39% so far this year.
While bitcoin and other cryptocurrencies have been extremely volatile, many financial experts are saying investors should not count them out.
Christian Catalini, a professor at MIT's Sloan School of Management, says regulation will "allow the space overall to thrive."
In addition, Kevin Lee of IceGold.com says cryptocurrency is the "largest transfer of wealth in our lifetime."
The advance on Wednesday came despite analysts from Goldman Sachs (GS) suggesting cryptocurrencies will fall to zero.
In a report for the bank, Goldman Sachs Global Investment Research head Steve Strongin said, "Because of the lack of intrinsic value, the currencies that don't survive will most likely trade to zero."
Strongin also said cryptocurrencies are valued today "based on what people might pay for them tomorrow, which is almost the definition of a bubble."
Concerns of fraud have also kept some investors from jumping on the cryptocurrency bandwagon. Startup cryptocurrencies offer what are called ICOs, or initial coin offerings. One of the most prominent is a token called Filecoin. But there are also fraudulent ICOs.
Accoridng to Popular Science, Catalini analyzed 1,500 ICOs and found that between 14% and 30% were "very likely to be scams." The SEC has also warned about the risks of ICOs. More regulation and investor protection could help reduce volatility and stabilize the cryptocurrency world.
The risk of fraud in cryptocurrency investing has led to big banks - including Bank of America (BAC), JPMorgan Chase (JPM) and Citigroup (NYSE:C) - banning the purchase of cryptocurrency with credit cards. A JPMorgan Chase spokesperson said the move was because of "volatility and risk involved."
The banks are trying to prevent people from buying cryptocurrency using borrowed money.
The global cryptocurrency market hit $834 billion in early January and has since plunged 66%, wiping out $553 billion, CoinMarketCap reported. Despite volatility and the recent plunge this year, crypto experts believe the market will reach a new high in 2018.
"Increasing regulatory recognition of cryptocurrency exchanges, the entrance of institutional capital and major technology developments will contribute to the market's rebound and push cryptocurrency prices to all new highs this year," Thomas Glucksmann of GateCoin told CNBC.
Disclosure: The author does not own any of the listed equities.
This article first appeared on GuruFocus.
Warning! GuruFocus has detected 4 Warning Sign with GS. Click here to check it out.
The intrinsic value of GS
