The last ten days have marked a wild end to the craziest year in the short history of cryptocurrency. Hype and mainstream media attention have grown with every new all-time high as Bitcoin went from $1000 in January to $10,000 on November 28. The price has soared since breaking the $10,000 psychological barrier, hitting highs above $18,000.
Even the most optimistic long-term holders are beginning to fear this rally is unsustainable. In the past, all-time highs have always been followed by a sustained dip. The current exponential rise in Bitcoin’s price defies all logic.
The next ten days will see things become even more interesting with the much-hyped introduction of Bitcoin futures by two major exchanges. CBOE Group will allow Wall Street futures trading from December 10, with CME Group following suit on December 18.
Much of Bitcoin’s growth over the past year has been fuelled by ordinary new investors getting swept up in the hype surrounding its growth. The recent surge has been different.
One of the central features of Bitcoin is the existence of an open ledger of transactions that anyone can view. The transactions that have been taking place recently are mostly transferring thousands of Bitcoin at a time, with many taking place for tens of thousands. To put that in perspective, 1000 Bitcoin is currently around $16,665,000, and transactions above 10,000 BTC are worth hundreds of millions of dollars.
This has had a big knock-on effect for those holding smaller sums. While the value of Bitcoin has increased, its utility value has seriously diminished. Transaction fees are often now twice what they were a week ago. Transaction fees are paid to Bitcoin miners to authorize transactions, and users are able to set their own transaction fee to bid for authorization. Users looking to move small amounts are increasingly finding that its impossible to propose a transaction fee high enough to get their transfer approved.
It’s clear that big money is pouring into Bitcoin at an unprecedent rate as CBOE and CME prepare to offer the first Bitcoin futures. This is unlikely to be coincidental.
There is a growing fear that big-time investors, or ‘whales’, are buying huge sums of Bitcoin with the intention of shorting it once trading begins on Bitcoin futures. If these whales then sell their Bitcoin at a loss, the price will plummet and they can make a huge return through shorting the crash.
The past year has been an insane time for anyone with an interest in Bitcoin. The next few weeks might see things get even wilder.