Fraud and volatility fears persist as bitcoin barrels on

LONDON - Despite its irrepressible market appeal, cryptocurrencies such as bitcoin still labour under a shady reputation, given a history of scandal and sudden price collapses, coupled with its popularity among cybervillains.

Last week, bitcoin -- the most widely used cryptocurrency -- reached its all-time high, topping $69,191, surpassing its previous high set in November 2021.

"Bitcoin is notorious for its frequent and substantial price fluctuations, making a potential downturn unsurprising as this volatility often reinforces its reputation as a highly volatile asset, particularly for those new to cryptocurrency markets," said XTB analyst Walid Koudmani.

"The enduring impact of fraud and illegal activities on cryptocurrencies, including bitcoin, continues to shape regulators' perceptions, despite its traceability and increases in awareness," says Koudmani

- Scandals and value gyrations -

The launch of a new investment vehicle -- bitcoin-indexed exchange traded funds (ETFs) in the US last January -- has further spurred prices.

Specialised companies such as Grayscale and Wall Street giants such as asset manager BlackRock are among those investing in the digital token, theoretically opening up the sector to a wider public by allowing investors to bet on bitcoin's price without owning it directly.

The soaring price is also due to an impending technical four-yearly phenomenon known as halving -- the next round of which is due for next month. This involves cutting in half the reward for "mining" bitcoin, slowing the rate at which units are created and restricting their supply.

The bitcoin rally comes at a time when cryptocurrency is struggling to restore its image after the collapse of several leading players in the sector, not least the bankruptcy of the FTX exchange platform in November 2022.

FTX founder Sam Bankman-Fried was found guilty of embezzling billions of dollars in customer deposits without their permission and bitcoin's price collapsed in the aftermath of the case, reminiscent of previous cycles of the cybercurrencies' booms and busts.

Bitcoin remains popular with those wishing to buy goods and services on the so-called darkweb without leaving any trace, and extorting funds via ransomware attacks, when hackers demand payments to unblock access to their victims' computer systems.

However, once authorities manage to trace the fraudulent funds, the bitcoins can be blacklisted by various services on the transactions blockchain, rendering them virtually unusable.

Cybercriminals are increasingly preferring to use different cryptocoins known as "stablecoins", whose exchange rate is pegged to either fiat money or commodities.

The total value of transactions received by virtual wallets holding cryptocurrencies derived from illicit activities fell to $24.2 billion in 2023, from $39.6 billion the previous year, according to a February report by US firm Chainalysis.

- Don't be too hasty -

Regulators are meanwhile warning the general public against making over-hasty and uninformed purchases in the crypto world, given the potential for massive losses.

The European Central Bank said in a February report that "the fair value of bitcoin is still zero."

They added: "For society, a renewed boom-bust cycle of bitcoin is a dire perspective. And the collateral damage will be massive, including the environmental damage and the ultimate redistribution of wealth at the expense of the less sophisticated."

To offset perceived risk, the European Parliament last April adopted a ruling requiring mandatory approval for service providers for digital assets.

Other countries, including Japan, have also passed legislation to expand existing regulations to include electronic payment systems, including cryptocurrencies.

The United States has been struggling to create a coherent regulatory framework as "politicians are still getting up to speed on cryptocurrency and the education gap remains large," said Cody Carbone, chief policy officer at the Chamber of Digital Commerce.

Carbone told AFP that "the lack of education has led to misconceptions and reactionary policy, driven by market failures," such as FTX.

He worries that in their desire to create "landmark" legislation, politicians "are trying to solve all the crypto world's problems in one fell swoop. These are extremely difficult to pass and build consensus on."

Another US problem, he added, was a "byzantine regulatory system" pitting state against federal authorities.

This means "regulators and states are able to move more quickly than Congress, which has led to a very confusing mess for businesses."

For XTB's Koudmani, "clear and consistent regulations, addressing concerns like money laundering while encouraging innovation, could instil trust and stability in the industry as real-world integration, exemplified by adoption by major corporations and seamless integration with existing infrastructure, may demonstrate cryptocurrency utility and propel wider acceptance." - Lucie Lequier / AFP