Commodity Blog

The price for bitcoin hit new highs Friday, reaching $142.76 at the leading yet beleaguered Mt. Gox exchange. The next largest exchanges in trading volume sold bitcoin for as high as $126.14 at Bitstamp and $121.95 at BTCe.

There is some speculation that the price has risen so quickly this week due to falling liquidity in the face of high demand, as bitcoin on offer are few and far between at these levels. On the Bitcoin reddit forum, the speculation that fewer bitcoin were offer at Mt. Gox could also be due in part to ongoing concerns about its liquidity in U.S. dollars in addition the the natural decline in offers during a rapid increase in price. The bid at other exchanges may also have a rising complement from arbitrageurs willing to simultaneously provide liquidity in bitcoin at Mt. Gox.

Another factor speculated upon is that as ASIC-driven mining has accelerated in performance, evident in the spiking difficulty in processing new blocks, there may be more of an incentive to hoard bitcoin to sell at a high enough level to make the expensive investment in the hardware a profitable venture. Of course, that assumes these dominant miners are comfortable enough to either hold a larger amount bitcoin for speculation and/or that the suppliers of their new mining equipment are doing the same.

However, one point which is clear is that an asset which can increase 9% in an hour could be just as volatile in both directions. So caveat emptor, or caveat speculator at least. It’s particularly a concern as the first spike this week to the $120 occurred on high volume throughout the morning, while the rise on Friday was the result of a high volume of 20,000 bitcoin traded in a single hour. (See chart below, courtesy of BitcoinCharts).