After several days of heavy losses, bitcoin and its rival cryptocurrency units rallied strongly on Wednesday following some surprisingly optimistic comments from US regulators.
In a hearing before the US Senate Banking Committee, the chairmen of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) offered their opinions on the long-term future of digital currencies, the blockchain technology that supports them, and how they should be regulated.
SEC chief Jay Clayton (left) appeared reluctant to see past the question of value and concerns over fraud and criminality.
Bitcoin futures applauded
Christopher Giancarlo, his peer at the CFTC, however, was much more upbeat and defended the mining process - saying it represented value. He also defended the bitcoin futures market.
Giancarlo (below) said: "“The CFTC can now obtain trading data and analyse it for fraud and manipulation.
"With Bitcoin futures we’re now having visibility into underlying markets and spot markets that we would not otherwise have."
Clayton focused on the practical use of digital currencies, saying volatility made transactions too difficult.
"I look at this from the perspective of Main Street investors, and they should understand that," he said.
But both remained concerned about unregulated cryptocurrency exchanges and called for a co-ordinated regulatory approach among the US states and the main agencies - including the SEC and CFTC - to address consumers' needs.
Senator Mark Warner, on the Banking Committee, agreed: "The potential writ large amongst crypto assets and the underlying blockchain could be as transformational as wireless was years ago. I think we’re going to need a much more co-ordinated effort."
The tone at the Senate hearing was less zealous than many had expected, given the approach of regulators in South Korea and China, and - more recently - the new head of the Bank for International Settlements Augustin Carstens, who has also called for a clampdown on bitcoin.
The price of bitcoin, which fell to $6,000 on the Bitstamp exchange on Tuesday, rallied following the Senate hearing and on Wednesday morning was up a further 24.4% to $7,696.60.
Lukman Otunuga remained cautious on cryptos, however. He said: "With ongoing fears about regulation haunting investor attraction and a steady flow of bad news exposing Bitcoin to downside risks, the outlook remains bearish."
He also offered some technical analysis. "Bitcoin is unquestionably bearish on the daily charts," he said.
"There have been consistently lower lows and lower highs while prices have crossed below the 200 Simple Moving Average. Sustained weakness below the $8,000 resistance level may encourage a decline back towards $6,000 and $5,000, respectively. Alternatively, a breakout above $8000 could encourage an incline back to $10,000."
As bitcoin prices rallied, the other main digital currencies followed suit:
- Ethereum climbed 31.32% to $783.51
- Ripple gained 29.13% to $0.746
- Litecoin rose 37.59% to $145.83
- NEM gained 51.94% to $0.568
Pictures courtesy of the SEC and CFTC