Volatility has returned to the digital currency space this month, as a massive security breach in one of bitcoin’s largest exchanges triggered panic-selling in the market, while Kim Dotcom recently teased about his upcoming Megaupload 2.0 project.
Bitcoin exchange Bitfinex recently said it was considering a plan to spread losses among all its users after a high-profile hack cost the firm around $70 million worth of bitcoins.
“We are still working on the details so nothing is set in stone. However, we are leaning towards a socialized loss scenario among bitcoin balances and active loans to [bitcoin/dollar] positions,” the Hong Kong-based company said on its website Friday.
The company suspended trading activity last week after a total of 119,756 bitcoins were stolen in a security breach. The news triggered a sharp selloff in the BTC/USD exchange rate, which has since consolidated well below its July highs.
According to CoinDesk, the BTC/USD exchange rate was last seen trading up 1.5% at $583.82. Renewed volatility in the market came after an extended period of stability that raised optimism about the digital currency’s growing mainstream appeal. Prior to this year, bitcoin was subject to volatile swings in its value. While the risk is still there, it appears that only major fundamental events are triggering the same kinds of movements that were commonplace just a few years ago.
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Despite the decline, the value of bitcoin has increased more than 35% since the start of the year. The cryptocurrency was up more than 50% prior to the most recent drop.
The US dollar enjoyed a broad rally against other fiat currencies on Friday after a government jobs report showed a firming labour market, which adds to existing speculation about the Federal Reserve’s plans to raise interest rates.
Bitcoin was in the news this week after Kim Dotcom, a German-Finnish Internet entrepreneur, said he was looking to launch “groundbreaking innovations that will make bitcoin more “mainstream” than ever before. The founder of the now-defunct Megaupload is planning to re-launch the file hosting service and will make bitcoin the centre of the site’s transactions.
“Every Megaupload file transfer will be linked to a tiny Bitcoin micro transaction,” Kim Dotcom said in an August 4 tweet that was shared over 500 times. “Get ready for Bitcache,” he added.
Dotcom also had a clear message for his followers: buy bitcoin now. The entrepreneur said he expects the value of the cryptocurrency to surge past $2,000 in 2017.
At its height, Megaupload boasted over 100 million users and generated more than $175 million in net income. Dotcomm said the new Megaupload service will include the over 100 million users that were registered on the previous site.
The next iteration of Megaupload will be launched in early 2017.
Bitcoin was in the headlines last month after a Florida judged ruled the digital coin was not a real currency. Miami-Dade Circuit Judge Teresa Pooler dropped state money-laundering charges against a man accused of selling $1,500-worth of bitcoins to undercover detectives.
In her July 22 ruling, Pooler said “this court is unwilling to punish a man for selling his property to another, when his actions fall under a statute that is so vaguely written that even legal professionals have difficulty finding a singular meaning.”
Bitcoin has enjoyed greater legitimacy in the public eye over the past two years, but still occupies a legal grey area in many jurisdictions. Governments, banks and merchants have all recognized the value of bitcoin, especially in its ledger technology, but have expressed concerns about its association with shadow markets and illicit black market activity.
Bitcoin is actually just one of many digital currencies. Its proponents are quick to remind detractors that the success of the coin has a smaller bearing on the overall uptake of cryptocurrency. The revolution away from fiat currencies is gaining traction, and peer-to-peer transactions appear to be a natural outgrowth of the digital revolution.
Several high-profile institutions have publicly admitted to experimenting with blockchain, including the British Treasury, Bank of Canada and Goldman Sachs. Currently, more than 100,000 merchants around the globe accept bitcoin as a legitimate payment method.