Video: Another bitcoin bubble? Backers hope this time is different

With bitcoin surging almost to its 2017 all-time high, backers are hoping fewer retail investors means less chance of a crash this time around.

Editor’s note:
The following is a transcript of the accompanying video. ©2020 Thomson Reuters.

Bitcoin is back. It’s surged to the cusp of its all-time high in 2017, and backers are hoping there’s less chance of a crash this time round. But it’s not yet made it to the mainstream, and analysts say bitcoin is still far from a safe bet.

Reuters’ cryptocurrency correspondent Tom Wilson: "Even though we've seen the embrace of some big companies like PayPal or like Facebook of digital coin technology, of bitcoin, of other cryptocurrencies, bitcoin is still very much on the fringes for many large investors. Pension funds don't really like it. Large asset managers don't really like it. And that's because there are still many risks associated with it.”

Bitcoin soared 160% this year. The steep trajectory of its rally echoes that of 2017 when a retail-led buying spree pushed it to nearly $20,000, only for it to crash more than 50% a month later. But 2020 isn't the Wild West of three years ago.

[Wilson said]: "Fans of bitcoin say that this rally is different to the 2017 bubble. That's because the structure of bitcoin markets has changed quite considerably. Now, there are larger investors involved in the space instead of an overwhelming majority of retail investors. At the same time, there are more sophisticated derivative markets so investors can hedge their positions and also a wider variety of custody services so investors can safely store their digital coins."

It’s easier these days for professional investors to seek exposure to crypto. Their involvement, the argument goes, may lead to more liquidity and less volatility. As regulation develops, big names are moving into the market.

Bitcoin is also benefiting from increased appetite for riskier assets, following government and central bank stimulus measures to combat recessions. Yet for all the improvements, it remains highly volatile. The sector is still opaque, trading data remains patchy, and concerns over market manipulation are rife. 2020 could just be another bitcoin bubble, waiting to pop.