Bitcoin in the Headlines is a weekly analysis of industry media coverage and its impact.
Bitcoin is back in the spotlight.
The digital currency’s recent price surge caught the attention of journalists across the globe this week, with major publications noting as bitcoin surged past the $450 mark on CoinDesk’s USD Bitcoin Price Index for the first time this year, even passing $500 on select exchanges.
You would have thought that the coverage of bitcoin’s rally would have ensured that the focus remained on the technology’s use as a digital currency, but this was not entirely the case.
As incumbents and pundits looked for reasons behind the market’s upward trend, talk of blockchain technology soon resurfaced, with skeptics like JPMorgan CEO Jamie Dimon and IMF chief Christine Lagarde attempting to steer the course of conversation.
Still, it was perhaps investor Tim Draper who best captured the awe and relief prevalent in the industry throughout the week, telling CoinDesk:
“How about that BITCOIN?”
‘A gigantic tear’
Talk of blockchain tech, while prevalent, didn’t do much to dissuade journalists from turning the bulk of their attention to the price of bitcoin, often with an enthusiasm that mirrored that of the millionaire investor.
Bloomberg picked up on the digital currency’s increase in value in a piece by Julie Verhage, which began with sweeping positive wording:
“Bitcoin is on a roll. Earlier this week we pointed out that the virtual currency was on a massive winning streak. It’s up nearly 40% in the last three days.”
The journalist then went on to list the possible factors behind the market’s rally. Citing Barry Silbert, founder and CEO of Digital Currency Group, Verhage included his comments about the perceived increase in demand coming from China.
“In fact, bitcoin has been trading at a 5 to 8% premium in China for the past two weeks, Silbert said,” according to the reporter.
The Wall Street Journal’s Paul Vigna also reported on the price increase through the increasingly irregular BitBeat column.
“The price of bitcoin is surging, crossing back over the $400 mark for the first time since last November, amid a burst of trading activity and a surge in interest in the technology underlying the cryptocurrency,” he said, adding:
“There isn’t one explanation for the move, but one thing is clear: The bitcoin hype machine is back in action – even if it’s been redirected.”
Following on from this, Vigna went on to note recent positive news in the space:
“Even if bitcoin still has a stigma in the public eye, the hype around the potential of bitcoin’s underlying mechanics – the so-called blockchain – has positively exploded.”
It seems, Vigna said, as if every bank on Wall Street is setting up some kind of group to probe and experiment with distributed ledger technology.
“It’s as if the shift in focus to the blockchain has completely changed people’s opinions about the technology,” he concluded.
Searching for clues
Elsewhere, media outlets went on a wild goose chase for reasons as to why the market saw its explosive gains.
Writing for Mashable, Stan Schroeder highlighted the possible reasons, thumbing through a series of positive news updates from the last few months.
“The January launch of US-regulated bitcoin exchange Gemini by the Winklevoss twins likely provided some support for the price rise, and a series of good news for bitcoins supporters – including Australia making strides towards recognising it as a currency and the top EU court declaring bitcoin transactions tax free – were probably triggers as well,” he wrote.
All legitimate points, except that Australia’s recognition of the cryptocurrency as a currency was followed by reports that various banks in the country were shutting down the accounts of bitcoin businesses.
Gemini’s possible effect on price is a theory that has been around for some time. As early as the beginning of October, a piece suggested that the Winklevoss’ exchange may have a positive effect on the price of bitcoin. Earlier this week, CNBC ran a piece which stated that the New York-based bitcoin exchange had seen a surge in trades.
Writing for the Financial Times, Izabella Kaminska, Dan McCrum and Robin Kwong outlined the possibility that bitcoin’s recent price rise was linked to a ponzi scheme.
“The price of the cryptocurrency bitcoin surged on Wednesday to its highest in more than a year amid a wave of Chinese testimonials for a ‘social financial network’ called MMM, which bears the hallmarks of a pyramid scheme.”
“New members of MMM have to buy bitcoins to join the scheme, which is the brainchild of Sergey Mavrodi, a former Russian parliamentarian since jailed for fraud,” the authors continued.
The bitcoins, said the journalists, are sent to other members of the network as “mutual aid’ with participants being promised a 30% return per month and bonuses for referring other users or posting testimonials online.
In the piece, Kaminska was typically bearish on bitcoin, noting how it is “championed by technologists and libertarians” and adding that it has a “fringe reputation”.
While it’s possible such a scheme could impact bitcoin’s relatively shallow market, the article contained little in the way of evidence that the scheme had a significant impact on transaction levels.
Though the theory can’t be discounted, there has been a lack of blockchain forensics linking wallets related to the MMM to spending on exchanges. Further, executives of major China-based exchanges such as BTCC have been warning about the scheme since as far back as October, well before the most recent escalation in price.
Observe and report
Reporters who weren’t attempting to find some larger narrative in the price movements were left wading through the difficulty of reporting metrics for a 24-hour financial market.
The New York Business Journal‘s Michael del Castillo began his piece by noting the issues with such reporting, writing:
“Reading the articles is totally unnecessary because headlines suffice: ’12 percent surge,’ ’70 percent on the month,’ flirts with $500,’ ‘reaches $500,’ etc.”
He continued: “Simply put, here’s the recap: after riding out most of the year steady, bitcoin’s price started to shoot up yesterday. In the past 24 hours, the price has increased by about $20 at the time of publication, but that was after it dropped about $70.”
Del Castillo also gave voice to the technology enthusiasts who are often quick to state that the currency’s rising price “does not matter”, in that its fluctuations do not change the potential of its applications.
He went on to cite how the latest price projections and predictions on bitcoin are largely arbitrary. For example, market analyst firm Wedbush revised its 12-month target for the price of bitcoin to $600 this week, an act he said “would have been unthinkable, well, about a day ago.”
Del Castillo successfully tapped into the feeling from many that this current price run “feels like November 2013”, a reference to bitcoin’s meteoric price increase to upwards of $1,000.
However, he was quick to allude to the fact that the ecosystem has matured since then, meaning market observers were perhaps incorrect in assumptions that the price increase was not driven by more organic awareness of the technology.
He concluded simply:
“Things are different now.”
Pete Rizzo contributed reporting.
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