By Tom Wilson
LONDON (Reuters) - Collective puzzlement has reigned among cryptocurrency analysts and traders since bitcoin's dramatic jump on Tuesday, with the mysterious spike shedding harsh light on flaws in a market the mainstream considers too opaque, too volatile and too risky.
Bitcoin soared nearly 20 percent in its best day since the height of its 2017 bubble, lifting smaller cryptocurrencies and prompting analysts to scour blockchain records and social media for clues on the catalyst for the sudden move.
"Anyone know any news? I have been asked "a few" times, but honestly clueless," tweeted Changpeng Zhao, chief executive of Binance, a major crypto exchange, soon after bitcoin's jump.
Some put the move down to big-scale, anonymous buying that ignited a frenzy of computer-driven trading. Others cited an spoof article suggesting U.S. regulators would give the nod to bitcoin-based exchange-traded funds.
Many simply shrugged: Just another day in the life of an emerging asset known throughout its first decade for its volatility.
But the head-scratching was a reminder, if bigger investors needed one, of dysfunction in a market plagued by problems from thin liquidity and poor price discovery to unreliable data and an absence of fair value for major assets.
"The challenge is that it's a completely decentralised environment," said Obi Nwosu of the London-based Coinfloor exchange. "There aren't tools in place to easily verify the quality of the data."
Bitcoin got close to $20,000 in December 2017 in a retail-led bubble that grabbed the attention of investors worldwide. But prices collapsed by three-quarters last year as regulators clamped down, usage of bitcoin stalled and interest waned.
On Friday, bitcoin was last trading at around $4,900, as it held on to Tuesday's gains.
Now at the wheel of crypto trading are niche hedge funds, wealthy individuals, and tech firms rooted in blockchain technology. Mainstream money, from pension funds to asset managers, is notable by its absence.
"These are very nascent markets," said David Mercer, CEO of LMAX Exchange Group, which runs FX and cryptocurrency exchanges.
Angst over cybersecurity at trading venues and questions over regulators' stance gnaw at longer-term investors, but the character of the market remains a key block to its development.
"A lot of funds do have very strict mandates about where they are able to invest," said Steve Swain of Lendingblock, a securities lending platform for cryptocurrencies.
"That comes down to markets that are trustworthy, properly run and regulated."