Thursday, July 19, 2018
Business

Bitcoin soars above $17,000, boosting worries and a worldwide frenzy

Bitcoin soared past the $17,000 mark on Thursday, a dizzying run for a digital currency that was worth less than $1,000 at the start of the year and was once largely the preoccupation of technologists or those looking to avoid scrutiny to launder money or buy drugs and weapons online.

The fast rise - it has gone up more than 40 percent this week alone - is creating a buying frenzy among eager speculators around the world and helping push bitcoin into the mainstream. But it is also forcing U.S. regulators to grapple with whether to legitimize a product that operates outside the control of any government or financial institution.

The run-up in price comes as bitcoin enthusiasts prepare to reach a new landmark. On Sunday, a bitcoin product will trade for the first time on a U.S. financial market, making it almost as easy to bet on the virtual currency as oil, corn or the euro.

The move will give it a "veneer" of legitimacy, said Mark Williams, a former Federal Reserve official who teaches finance at Boston University. "From an investors standpoint, that could give it a false sense of protection."

Indeed, many industry experts warn that the United States is not prepared for bitcoin’s entry into the financial markets. As bitcoin prices were setting records, hackers this week reportedly made off with $70 million in the digital currency after targeting NiceHash, a cryptocurrency platform. The Futures Industry Association, which includes Goldman Sachs and JPMorgan Chase, has complained that the process for investing in bitcoin is moving too fast. "We remain apprehensive with the lack of transparency and regulation of" bitcoin, the group said in a letter earlier this week.

Such warnings haven’t stopped the craze surrounding the currency, as the sharp rise in value creates ever more demand around the world. In South Korea, ordinary people are pouring their life savings into bitcoins and other digital currencies. In Venezuela, after observing the rise of bitcoin, the government announced it would launch its own virtual currency called "The Petro" to get around U.S. sanctions.

Bitcoin was first created in 2009 under mysterious circumstances - little is known about who originally came up with the idea. It launched as a digital currency - without physical coins such as dimes or nickels - and was accompanied by an online payment network, similar to Paypal. But unlike Paypal, the bitcoin transaction system is not owned by anyone.

Its decentralized, democratic nature gave it special appeal among technologists - and some international criminals. Only buyers and sellers - rather than the central bank of a government - can change its value. Transactions between accounts are recorded on online ledgers and prices posted publicly on exchanges such as Coinbase’s GDAX, one of the indexes that tracks the value of bitcoin. GDAX on Thursday reported bitcoin’s price of more than $17,000.

Cryptocurrencies initially won fans among technology enthusiasts and people trying to avoid traditional currency markets. Last week, for instance, Venezuelan President Nicolás Maduro announced the country would develop its own cryptocurrency, dubbed "the Petro," to defeat Trump administration sanctions.

It has also proven popular with people seeking to buy drugs on off-the-grid online marketplaces without being detected by the police. When federal authorities shut down one such marketplace called Silk Road in 2014, they seized 26,000 bitcoins worth about $3.6 million.

"The people who started to use bitcoin years ago were those that couldn’t use anything else," said Nicolas Christin, a security researcher at Carnegie Mellon University.

Confidence in the virtual currency has been repeatedly shaken by spectacular failures, including the 2014 implosion of the largest bitcoin exchange of its time, Mt. Gox, which went bankrupt after $400 million in bitcoin was allegedly stolen. Hackers remain a threat and sometimes bitcoins just disappear after their owner forgets or loses the passwords for their accounts.

"Ten percent of bitcoin that has been generated to date has been lost forever," estimated Williams from Boston University. "That is billions and billions of dollars."

But these hiccups have been followed by quick rebounds. Some retailers, such as Overstock.com and Subway, began accepting bitcoins as payment several years ago and bitcoin ATMs are available in some cities, making purchase of the currency easier. Brokers such as San Francisco-based Coinbase have developed apps to made it easy to buy and sell bitcoins from a personal computer or smartphone.

Yet, for Wall Street investors, bitcoins have remained a fringe product, too awkward - and potentially hazardous - to buy and sell. On a typical day, the price of a single bitcoin can rise or fall 10 percent or more, the kind of fickleness that would send panic through traditional stock markets.

But investors are finding bitcoin difficult to ignore as its collective value races past $250 billion, more than the gross domestic product of Vietnam and Greece.

The currency’s growing popularity has split the investment world. Jamie Dimon, chief executive of JPMorgan Chase, the largest bank in the United States, has dismissed bitcoin as a "fraud." "If you’re stupid enough to buy it, you’ll pay the price for it one day," he said last month.

Yet, Bill Miller, a legendary investor famous for producing better returns than the Standard & Poor’s 500 for 15 years straight before hitting a rough stretch, has been investing in bitcoin for years. Bitcoin remains "speculative" and could easily fall 50 percent, he said. But "it’s been a big winner for us."

Until now, investors who want to wager on bitcoin prices in traditional ways have had to do so in Europe or Asia. But these overseas marketplaces are often too small and loosely regulated to attract large U.S. investors, said Michael Unetich, vice president of cryptocurrencies at Trading Technologies, which provides trading software. Some have even gone out of business or been victimized by hackers, who steal their bitcoins, he said.

"They are not seen as legitimate by institutional investors" such as hedge funds, said Unetich.

There’s been an ambivalence in the United States. Earlier this year, the Securities and Exchange Commission rejected an application from Cameron and Tyler Winklevoss, the twins famous for suing Mark Zuckerberg over the creation of Facebook, to create a bitcoin product over concerns such exchanges could be vulnerable to "fraudulent or manipulative acts and practices." The Office of the Comptroller of the Currency, another financial regulator, has been slow to adopt new rules that could potentially legitimize the bitcoin market, industry experts say.

William Dudley, president of the Federal Reserve Bank of New York, recently said he remained cautious about the digital currency, saying it was not a "stable store of value and it doesn’t really have the characteristics that you’d like to have in a currency."

Yet, he said, "It is something we are starting to think about: what would it mean to have a digital currency, what would it mean to offer it, do we actually need it."

An eary test could come this week. The Commodity Futures Trading Commission is allowing the Cboe Global Markets and the Chicago Mercantile Exchange to offer a bitcoin product, for example, that will permit investors to bet on future price changes. The better-known Nasdaq could follow next year.

Cboe has already received significant interest about its new bitcoin product, said John Deters, its chief strategy officer.

"The interest we have seen is probably more broad based than anything we have seen before," said Deters. "We’re really offering something different, a truly regulated and well surveilled (bitcoin) marketplace with transparent rules and cutting edge technology."

Yet, Deters acknowledges, the bitcoin craze that has sent the value of the virtual currency soaring, could dissipate once it hits the regulatory rigors of a traditional trading market.

"Nobody knows, we will see what happens when people start to engage," he said. "I think we’re modest in terms of the expectation."

For now, experts urge investors to be wary. There are dozens of venues that quote slightly different bitcoin prices, many of which are small and could potentially be manipulated, they said. Also, some bitcoin enthusiasts are hoarding the virtual currency rather than using it to make a purchase, worried that its price will go up even further, rendering their purchase laughably expensive.

"As the price skyrockets, it is hard to justify selling your bitcoin to buy a piece of furniture when tomorrow you could afford to buy two pieces of furniture," said Jai Massari, a partner at Davis Polk & Wardwell, who advises clients on financial regulation.

But those accumulating bitcoins could try to sell just as quickly, and there’s no certainly they will find ready buyers, experts said, leading prices to fall as fast as they rose.

Comments
OSHA has open inspection into Clearwater company MagneGas

OSHA has open inspection into Clearwater company MagneGas

CLEARWATER — The federal Occupational Safety and Health Administration has an open inspection into a safety-related incident involving Clearwater-based MagneGas Corp. A federal investigator opened the inquiry into the publicly-traded alternative fuel...
Updated: 2 hours ago
Winn-Dixie remodeled in Tampa opens as sixth made-over store this year

Winn-Dixie remodeled in Tampa opens as sixth made-over store this year

TAMPA — Winn-Dixie unveiled another remodeled store, the sixth in the area, after promising to remodel much of its chain following its emergence from bankruptcy this year.The made-over store at 805 E. Dr. Martin Luther King Jr. Blvd. has a host of ne...
Updated: 4 hours ago
Starbucks to open its first U.S. sign language store

Starbucks to open its first U.S. sign language store

WASHINGTON — Starbucks has more than 8,000 stores nationwide. One of them will soon be run entirely in American Sign Language.Starbucks’ first signing store in the United States will hire 20 to 25 deaf, hard of hearing and hearing partners with the r...
Updated: 5 hours ago
State Rep. Janet Cruz calls to cut off state ties with SunPass contractor, waive toll fees

State Rep. Janet Cruz calls to cut off state ties with SunPass contractor, waive toll fees

TAMPA - State Rep. Janet Cruz, D-Tampa, says she’s fed up with Florida’s problems with the SunPass tolling system that have persisted since early June.She’s asking the state to address what she referred to as the "gigantic racket" with the following ...
Updated: 6 hours ago
St. Petersburg beef company recalls more than 6,000 pounds of meat

St. Petersburg beef company recalls more than 6,000 pounds of meat

ST. PETERSBURG — A St. Petersburg wholesale meat retailer is recalling more than 6,000 pounds of fresh and frozen beef because of possible E. coli contamination, the USDA said Thursday.Five products produced by the St. Petersburg-based Ottomanelli Wh...
Updated: 6 hours ago
This week in savings: Best Tampa Bay grocery deals for July 18 - 25

This week in savings: Best Tampa Bay grocery deals for July 18 - 25

It’s a regular occurrence for me: Once a week, I’ll take out all the ads that have been mailed to my house and spread them across my tiny glass table.I grab my scissors for any coupons. Pull up any apps for stores whose ads I didn’t get and laugh at ...
Updated: 8 hours ago
We asked readers for tips on how to cut down on plastics. Here are 24 ideas they gave us.

We asked readers for tips on how to cut down on plastics. Here are 24 ideas they gave us.

Many of you are passionate about how to cut down on disposable plastics. You lit up our inbox with suggestions that ranged from the everyday — use cloth shopping bags — to the cosmic — get SpaceX founder Elon Musk to build a space ship capable of dep...
Updated: 8 hours ago
Brink: Sure, forgo straws and shopping bags, but innovation is key to tackling plastic waste

Brink: Sure, forgo straws and shopping bags, but innovation is key to tackling plastic waste

Plastic is found in everything from heart stents to fishing nets to athletic clothing. It extends the shelf life of food and improves the fuel efficiency of planes. Undoubtedly, the wonder product has made our lives easier. Unfortunately, the systems...
Updated: 8 hours ago
The house featured in the ‘The Brady Bunch’ hits the market for $1.885 million

The house featured in the ‘The Brady Bunch’ hits the market for $1.885 million

There could soon be a new owner for one of the U.S.’s most iconic Hollywood homes.The house that’s featured in the opening and closing scenes of The Brady Bunch is now up for sale.Its asking price? A cool $1.885 million, the Los Angeles Times reports...
Updated: 8 hours ago
Owner brings new touches to Rouen Thai restaurant in South Tampa

Owner brings new touches to Rouen Thai restaurant in South Tampa

A popular South Tampa Thai restaurant has a new owner and a few additions as well.Rouen Thai has been around for nearly 20 years and has its fair share of regular customers, so when new owner Chonlada Malingam came along, she had big shoes to fill to...
Updated: 9 hours ago