Bitcoin back in favour

Bitcoin has moved above the US$1,800 level for the first time, helped by increasingly positive investor sentiment on the future of the cryptocurrency.

The increase comes only two days after the price of the digital currency rose above US$1,700. The price of bitcoin has risen by more than 80% since the start of this year and its market capitalisation currently stands at just over US$29.5bn.

The most recent rise was attributed partly to comments by Neel Kashkari, president of Minneapolis Federal Reserve Bank, although his enthusiasm was more for the potential of blockchain, the technology underpinning bitcoin.

“I would say that I think conventional wisdom now is that blockchain and the underlying technology is probably more interesting and has more potential than maybe bitcoin does by itself,” said Kashkari, speaking at a technology conference.

Attitudes towards bitcoin have also been helped by Japan legitimising the cryptocurrency as a payment method and a greater amount being bought with yen (JPY), while Russia is showing signs of a more relaxed attitude.

A number of analysts suggest that these recent developments could give bitcoin further impetus and see the digital currency moving towards the US$3,00o level before the end of this year. A further contributory factor was set last July in a process called “halving”, in which rewards offered to bitcoin miners shrink, which has constrained supply.

The increase in price over recent months is also partly attributed to an increase in demand for other digital currencies being sold in so-called initial coin offerings (ICOs), under which blockchain start-ups sell their tokens directly to the public to raise capital without any regulatory oversight. More than 40 start-ups have launched an ICO this year.

“For the first time in financial history, founders can access capital from both large and small investors armed with nothing more than a slick website,” said Arthur Hayes, chief executive officer (CEO) at cryptocurrency derivatives trading platform BitMEX.

However, bitcoin continues to have a number of sceptics, including Carl-Ludwig Thiele, a board member of Germany’s central Bundesbank who recently warned against investing in the digital currency.

Thiele told a German newspaper: “Bitcoin is a means of exchange which is not issued by a central bank, but by unidentified actors. I do not see it as a currency. If you think bitcoin would be as safe as the euro or the dollar, you have to take responsibility for it. We can only warn people not to use the bitcoin to preserve purchasing power.”

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