Oct 5, 2018
Bitcoin, which just had its first major sell-off in months, has jumped almost 10%, powering the world's largest cryptocurrency back above $6,500 after it looked likely to fall below the psychological $6,000 mark.
Bitcoin leapt from $6,222 to early highs of $6,732, according to CoinDesk data, adding almost $10 billion to bitcoin's market capitalization in a matter of minutes. On some exchanges, including the Hong Kong-based Bitfinex exchange where bitcoin often trades at a premium, the bitcoin price climbed to over $7,000. The sudden rise in the bitcoin price was signaled by a sell-off of the dollar-linked tether digital coin, the only cryptocurrency which is down today, according to CoinMarketCap data.
Traders often sell tether to buy other cryptocurrencies and a sudden influx of tether sellers would push down the tether price, and boost the bitcoin price if that's what traders are moving their money to. Tether was down by some 3% in the run up to bitcoin's sudden price rise. Tether is the second-most traded of all digital currencies after bitcoin, according to CoinMarketCap.
Tether's tokens are designed for stability and the tether price doesn't usually stray far from the U.S. dollar price because Tether Limited, the company that issues the tokens, says each one is backed by a dollar in its bank accounts, though this has not been independently verified.
Bitfinex put out a statement saying it temporarily suspended fiat deposits on to the exchange "for certain user groups" last week in order to deal with "processing complications". "We are working to implement a new and increasingly robust fiat deposit system to be available in the next 24 hours, by Tuesday, October 16, 2018, to allow for the efficient processing of fiat deposits. Until then, we apologize for the inconvenience of the situation."
The exchange also sort to reassure users withdrawls from the exchange were operating normally. It has been suggested that tether trading on the Bitfinex exchange, which has the same chief executive as Tether Limited, has helped to prop up the bitcoin price over recent months. Bitfinex dismissed allegations that it was insolvent in a Medium post last week, and said that withdrawals were functioning as normal.
"Bitfinex is not insolvent, and a constant stream of Medium articles claiming otherwise is not going to change this," the exchange wrote. "As one of only a very few exchanges operating since 2013, with a small team and low operating costs, we do not entirely understand the arguments that purport to show us to be insolvent without providing any explanation about why. The wallets below represent a small fraction of Bitfinex cryptocurrency holdings and do not take into account fiat holdings of any kind."
This rise in the bitcoin price all but erase the losses bitcoin recorded late last week, leaving the bitcoin price roughly level since mid-September. As usual, bitcoin's price jump pushed up the wider cryptocurrency market, with the ethereum price and the ripple (XRP) price both recording around double-digit percentage gains.
Short, sharp changes in the bitcoin price are often attributed to either trading bots initiating a buy or sell order that then gets picked up by others, causing a domino effect on the price, or by so-called whales (large holders of a cryptocurrency or another asset) buying or selling a big enough chunk at under or above the current market rate.
This causes the market rate of the asset to suddenly move in the direction of the sale, often causing havoc for exchange operators. Bitcoin's falling price since the beginning of the year (which is down from highs of almost 20,000 at the end of 2017) has been put down to a fall in trading volume since its peak at the end of 2017, something that has hit cryptocurrency exchanges around the world, prompting some to cut costs and lay off staff.
Elsewhere, some market watchers speculated the rise in the bitcoin price could signal a return to form for the U.S. tech-heavy Nasdaq stock exchange, which dropped sharply. The U.S. Nasdaq Composite Index became the first major U.S. stock market benchmark to dip into a correction, dragged down by losses across all the major technology-related companies.
A correction on Wall Street is defined as down more than 10% from its high. Online retailer Amazon, streaming service Netflix, and Google parent Alphabet were all in correction territory after taking big hits due to fears around rising interest rates.