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Bitcoin hits $US10,000 but are whales ready to give the market a haircut?

Bitcoin's hyper-frenzy saw exchanges pummelled with trading volumes on Wednesday as Bitcoin surged above $US10,000 for the first time in the technology's history.

The cryptocurrency is up 950 per cent or the year, enjoying a manic 54 per cent lift in the last two weeks alone, which brought its market capitalisation to $US167 billion ($210 billion).

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The cryptocurrency was fetching $US10,029 ($13,277) in afternoon trade in Sydney, on CoinDesk's Bitcoin Price Index.

More than $12 million dollars poured into Australian exchange Independent Reserve on Wednesday morning, with the company now signing up as many as 800 new customers a day, up from 200 last month, as mainstream mania takes hold.

"It's going insane," said Adrian Przelozny, chief executive of Independent Reserve. "We are seeing much more sophisticated investors who have been sitting on the sidelines now entering. We're talking to hedge funds, self-managed super funds, the next wave of investors."

The blockchain was groaning under billions of trades, though largely only "buy" orders as speculative punters bet on Bitcoin's continued rise.


Mainstream interest was well and truly piqued, and headlines around the world broadcast people swapping houses for cryptocurrency and chatrooms exploded as more Aussie dollars, euros, greenbacks and yen were swapped for Bitcoin than ever before.

Even?as analysts disagree on whether the largest?cryptocurrency?by market?capitalisation?is truly an asset, its $US167 billion value already exceeds that of about 95 per cent of the S&P 500 Index members.

"This is a bubble and there is a lot of froth. This is going to be the biggest bubble of our lifetimes," hedge fund manager Mike?Novogratz?said at a?cryptocurrency?conference Tuesday in New York.

The whale song

But long-term watches are warning there are some Bitcoin holdings that are so large - worth hundreds millions of dollars - that they have been known to emerge at times of peak-exuberance sending?dramatic shocks through the markets to wipe out smaller holders who have taken on too much risk.

"There's been extreme mainstream penetration recently and these new guys have the jitteriest hands," said Duncan Campbell, director of Digital Currency Experts, an education consultancy .

"We've seen it time and time again, where these big whales think it's time to give the market a haircut and they move a couple of thousand of Bitcoin. That's enough to melt the exchanges and these new guys will be left extremely, extremely panicked."

We've seen it time and time again, where these big whales think it's time to give the market a haircut and they move a couple of thousand of Bitcoin.

Duncan Campbell, director of Digital Currency Experts

Whale traders can spook an overheated market by selling a moderately large block of the assets below the market rate. This generally causes a panic sell-off by small-time traders, who flood the exchanges with sell orders.

The whale then waits and scoops up the assets when they've reached a satisfactory low. The practice is often known as "shaking out weak hands".

Earlier last month, several extremely large Bitcoin holders swapped their large holdings of Bitcoins for Bitcoin Cash - an alternative crypto-asset developed for faster transactions.

These moves saw a dramatic $US2,000 plunge in the Bitcoin price and showed just how many Bitcoin are centralised in a few wallets.

"There definitely are some guys who have a lot of power in the market," says Mr Przelozny. "And we are cautioning people because there is a good chance there will be a dip in the next month or two. This does look like irrational exuberance."

How the tech is holding up

While there is hysterical chatter above, Bitcoin miners seem to be comfortably managing the extreme Bitcoin demand with the average transaction time around 8.5 tp?9 minutes, and around 7.3 blocks an hour. Not too dissimilar to the rates at the beginning of the year, given how many new mining participants have come online.

But given most people are buying and holding cryptocurrency at present, this is not as demanding on a blockchain. Whereas if billions of commercial transactions were to begin taking place and the blockchain became infinitely more dynamic, the verification pipeline is likely to become clogged.

Indeed, Bitcoin developers are still debating scaling solutions for mainstream adoption particularly with respect to how much energy is needed to power the verification network.

For example, the mining of bitcoins this year has consumed more energy than the average electricity consumed annually by 159 nations, according to Digiconomist.

The same research showed energy consumption had increased 20 per cent in the last month alone and should it continue at this rate Bitcoin mining will consume all of the world's available electricity by February 2020.

There are 16.7 million Bitcoin in circulation, according to data from Chainalysis, bringing bitcoin's market capitalisation to some $US167 billion.

Of those in circulation, about 37 per cent have been spent or traded in the past year, while some 22 per cent are being held by "strategic investors", and most of the rest have been lost.

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