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White-knuckle Bitcoin rally powers crypto's best week since 2017

Some worry rally is untethered, fuelled by vast swathes of fiscal stimulus

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Commentators point to a range of demand sources for crypto currencies, ranging from rampant speculation by stuck-at-home day traders to increased purchases by institutional and corporate investors.

CRYPTO currencies are on course for their biggest weekly surge since the last bubble in Bitcoin peaked about three years ago, ahead of a spectacular crash.

The Bloomberg Galaxy Crypto Index, which includes Bitcoin, Ether and three other digital coins, has rallied about 40 per cent so far this week. That is the most since a 55 per cent climb over a similar period in December 2017.

Crypto currencies are becoming emblematic both of the exuberance in financial markets as well as of the concern that the pace of gains is unsustainable.

Believers in Bitcoin, which broke through US$40,000 for the first time Thursday, see it as a maturing asset that provides a hedge against US dollar weakness and inflation risk. Others worry that the rally is untethered from reason and fuelled by vast swathes of fiscal and monetary stimulus.

Commentators have pointed to a range of potential sources of demand for crypto currencies, ranging from rampant speculation by stuck-at-home day traders to increased purchases by institutional and corporate investors.

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The potential for "upside of historic proportions" suggests investors should keep buying Bitcoin and Ether, said Rich Ross, a technical strategist at Evercore ISI.

But in a note on Wednesday, he also described the outlook as "tulip-like" - a reference to the 17th century mania for tulip bulbs that led to one of history's most infamous market bubbles and crashes.

The total market value of crypto currencies surpassed US$1 trillion for the first time this week after a five-fold climb in the past year, data from tracker CoinGecko showed. CoinGecko's figures cover more than 6,000 coins.

Bitcoin slumped as much as

17 per cent on Monday before recovering and jumping to fresh highs. It slipped 3 per cent as of 3.21pm in Tokyo to about US$38,300. The Bloomberg Galaxy Crypto Index fell 6 per cent.

Bitcoin's wild price swings resumed this week after climbing above US$40,000 for the first time.

After jumping as much as

11 per cent to US$40,394, Bitcoin fell around US$3,500 in about half an hour and continues to fluctuate. Prices vacillated as much as 17 per cent on Monday. The digital token has more than doubled in less than a month.

"Bitcoin continues to defy all expectations and doubters," said Antoni Trenchev, co-founder and managing partner of Nexo, a crypto lender.

"It's leaving all other assets trailing in its wake, like it's done year in, year out for the past decade."

Digital coins are jumping in a world awash with fiscal and monetary stimulus, even as some commentators fear an inevitable bust and others question the basic integrity of crypto markets.

Geoffrey Morphy, president of Canadian crypto mining company Bitfarms Ltd, said: "The more that people perceive that their assets - particularly their liquid assets such as fiat currencies - are eroding in value, the more they will look for alternatives."

Active Bitcoin accounts are nearing their all-time high levels of late 2017, said researcher Flipside Crypto - possibly a sign that some holders are planning to sell.

Fewer than 2 per cent of accounts hold 95 per cent of Bitcoin supply, so a few big trades can impact prices. The last big Bitcoin boom began imploding in late 2017.

Some traders pointed to JPMorgan Chase & Co's long-term Bitcoin price forecast of US$146,000 as possibly fuelling the rally. Others said sentiment was boosted by a US regulatory update that allows a class of less-volatile coins to be used by banks for payments.

"This parabolic move upwards, with normally staid Wall Street firms including JP Morgan calling US$146,000 as their price target for Bitcoin, and Guggenheim called US$400,000, feels like it has a long way to go before exhausting," said Guy Hirsch, managing director for US at eToro.

"It wouldn't be all that surprising to see US$100,000 at some point this year, given the current momentum." BLOOMBERG

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