Bitcoin tops $11,000 barrier after $1,000 surge in 12 hours

bitcoin uses encryption and a blockchain database that enables the fast and anonymous transfer of funds

Markets : Bitcoin zoomed past $11,000 to hit a record high for the sixth day in a row on Wednesday after gaining more than $1,000 in just 12 hours, stoking concerns that a rapidly swelling bubble could be set to burst in spectacular fashion.

After soaring more than 1,000 percent since the start of the year, bitcoin rose as much as 15 per cent on Wednesday.

It topped $10,000 for the first time in early Asia trading, before surging above $11,000 less than 12 hours later to reach $11,395 on Luxembourg-based Bitstamp, one of the largest and most liquid cryptocurrency exchanges, and then dipping back below $11,000.

Bitcoin's rapid ascent has led to countless warnings that it has reached bubble territory in recent weeks. But the warnings have had little effect, with dozens of new crypto-hedge funds entering the market and retail investors piling in.

The world's largest bitcoin wallet provider, San Francisco-based Coinbase, signed up 300,000 new users between last Wednesday and Sunday, during the US Thanksgiving holiday, according to data compiled by Altana cryptocurrency fund manager Alistair Milne. It now counts more than 13 million customers.

The evidence suggests that few of the users are buying bitcoin to use it as a means of exchange, but are speculating to increase their capital.

"What's happening right now has nothing to do with bitcoin's functionality as a currency - this is pure mania that's taken hold," said Garrick Hileman, a research fellow at the University of Cambridge's Judge Business School.

"This is very much a bubble that will very much correct itself at some point and people need to be very careful."

Hileman, who last week gave a lecture to the Bank of England on the risks of bitcoin and other cryptocurrencies, also flagged the risk of the whole market collapsing entirely.

"There's always the possibility that some fundamental cryptographic flaw that we can't solve craters the whole space, or that regulators unite and decide this represents systemic risk and actually could trigger the next financial crisis," he said.

"Exit Ramps"

Created in 2008, bitcoin uses encryption and a blockchain database that enables the fast and anonymous transfer of funds outside of a conventional centralized payment system.

It has far outstripped gains seen in any traditional asset classes or currencies this year. It rise accelerated in recent months as exchanges such as the CME Group Inc and the Chicago Board Options Exchange announced plans to offer futures contracts for the cryptocurrency.

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