Bitcoin's phenomenal surge has overwhelmed exchanges with crazy speculators

As Bitcoin's price continues to rise, speculators are flocking to trading platforms.

Since the beginning of November, the price of Bitcoin has doubled and has increased about 14 times this year. After Thanksgiving, it has become more crazy than ever. It took less than ten hours to rise from $14,000 to $15,000. Yesterday, the price on the Coinbase trading platform soared by $2,000 in just over ten minutes, breaking the record of $19,700, and then fell sharply back to $15,000.

A Coinbase spokesperson said that price fluctuations of up to 20 percent in just a few hours were not unusual for a digital currency, and that other trading platforms experienced similar price fluctuations.

The crazy rise of Bitcoin and the intraday fluctuations of thousands of dollars have made the situation quite chaotic. During this period, the fragility of Bitcoin trading infrastructure has been exposed one after another.

As demand surges along with prices, the influx of participants has put trading service companies under tremendous pressure.

Some trading platforms issued statements saying that their systems were not functioning properly. At that time, the difference in transaction prices between different platforms was sometimes $1,000 or even more. The Financial Times of the United Kingdom said that the crazy market made other exchanges exhausted, and the price difference between some platforms and Coinbase was as high as $4,000.

Matt Brief, director of trading at IG Group’s trading platform, said that the lack of a unified trading platform for Bitcoin may lead to different prices, and “current pricing is very subjective.” He also said that the huge price difference leads to arbitrage opportunities between different exchanges.

Some trading platforms have also experienced trading failures. Blockchain.com, which provides a "wallet" service for storing digital currencies, has seen record traffic and customer support requests, and CEO and co-founder Peter Smith called on customers to remain calm and "hold on a little longer."

Network capacity has been a problem that bitcoin developers have struggled to overcome for years. A slew of updates aimed at easing congestion have backfired, further polarizing investors and creating a distorted currency called bitcoin cash, which is currently trading at $1,272.

The soaring prices and huge market fluctuations have raised security concerns. IG, one of the largest spread betting service providers in the UK, even announced at the end of last month that it would suspend trading in some Bitcoin derivative contracts.

Other online markets, including retail forex and CFD broker Plus500, also raised their dollar fees for holding open positions as Bitcoin rapidly approached $10,000 at the end of last month, with some markets charging fees equivalent to 175% of the past year's level.

Criminals also seem to have taken advantage of the situation. Wall Street News mentioned that Nice Hash, the world's largest digital currency mining power market, said on Facebook on Wednesday that hackers attacked the trading system and stole an unknown amount of users' bitcoins from the company's virtual wallets.

According to Bitcoin Millionaire, a Bitcoin information website, Nice Hash has been hacked to the tune of 4,736 Bitcoins, which could be worth as much as $68 million if calculated at $15,000.

Bitfinex, one of the world's largest bitcoin trading platforms, also issued a statement earlier on Thursday saying that the company had been suffering from severe DOS attacks for several consecutive days.

As a virtual asset that has no government credit endorsement, no central bank setting interest rates, no real credit market, is not linked to the real economy, and has not been widely recognized by the government, the surge in Bitcoin is unsurprisingly seen as a typical feature of a bubble.

French Nobel Prize winner in economics Jean Tirole published an article at the end of last month, clearly expressing his concerns about the rise of cryptocurrencies, saying that Bitcoin violates the essence of finance and is a complete financial bubble.

The Financial Times also quoted Walter Zimmermann, a technical analyst at ICAP TA, as saying:

People are treating a computer game as if it were a normal market. Obviously, it is not, otherwise it would not be like this. This is not just abnormal, it is unprecedented. Any other commodity has a natural willingness to sell it to people.

CME Group’s bitcoin options contracts, which are set to be launched soon, are seen as helping to smooth out volatility in bitcoin prices as they allow people to short the currency.

But the problem is that CME's Bitcoin futures neither treat Bitcoin as a currency nor as a commodity. If investors carefully understand the details of the CME Bitcoin futures setting and its "fundamental purpose", they may really need to "think again".