Bitcoin is on an exceptionally wild ride.
The digital currency gained as much as $920 on Monday, before losing some ground to trade near $6,500. Over the past week it has bounced as high as $7,720 and as low as $5,620 — a swing of nearly 30%.
Analysts said that volatility has spiked after plans to split Bitcoin into two were dropped last week amid a backlash from owners and fans of the currency.
The proposed split, or “fork,” would have allowed for faster transaction processing speeds.
“One of the main problems with Bitcoin is that it does not scale up properly as more and more users adopt it,” said Daniele Bianchi, assistant professor of finance at Warwick Business School.
But not everyone was on board with the plan. Bianchi said that opponents preferred the status quo because they see Bitcoin as an investment rather than a method of payment.
John Spallanzani, chief macro strategist at the broker GFI, said that calling off the split caused Bitcoin prices to collapse and rival digital currencies to surge.
But he expected Monday’s rebound and says it could continue.
“Bitcoin has been prone to sizable corrections and we had two such large corrections just this year,” he said. “However, [in each case Bitcoin] subsequently made a new high.”
Bitcoin owners don’t have too much to complain about. The currency has gained nearly 600% this year, and its price has doubled from as recently as mid-September.
The momentum has been helped by several major endorsements. Japan recognized Bitcoin as legal tender in April. And CME Group, which owns the Chicago Mercantile Exchange, announced plans last month to start listing Bitcoin futures contracts during the fourth quarter.
But analysts are divided on the future of the alternative currency.
“Bitcoin prices will be volatile — it has been like that the last few years and it will be like that the next few years,” said Ronnie Moas, an analyst at Standpoint Research. He thinks Bitcoin could reach $50,000 in just a few years.
Researchers at UBS, however, say that recent price rises are the result of speculative trading.
They wrote in a research note that following a twenty-fold increase in Bitcoin prices over two years, “cryptocurrency prices are almost certainly a bubble.”
