Thursday Afternoon Check-Up: The “Bitcoin Bubble” Bursts
Happy Thursday to you crypto-keepers! Even though your portfolio may be down this week (like it is for many of us), we hope you’re keeping your chin up and managed to take some profits off the table for safe-keeping. Got any plans this weekend besides studying the charts and looking for the next big thing? We don’t. And while we aren’t thrilled about bitcoin’s current price decline, we think its important to remember the age-old adage, “what goes up, must come down.”
If we pick up from where we left off on Monday – just three days ago – we can see that Singapore was spot on in their assertion that the “crypto asset bubble” was a reality, and waiting to pop. Indeed, in the last 72 hours the price of bitcoin saw a dive of over 30%, dipping all the way down into the $8000s in some markets on Tuesday, before springing back up into the $11,000 range. The last month has been one of the most turbulent in the course of bitcoin’s tumultuous history, with this week’s decline in price being eclipsed in velocity by only the fall of MtGOX back in 2013. Despite the correction in BTC’s price, which dropped close to 50% over a 40-day period, the godfather of all cryptocurrencies still remains up an astonishing 400% over the last 6 months, and 900% over the last 12.
The sudden disappearance of some $150 billion in total market capitalization since our last Roundup article is not only leaving coin investors and long-time HODLers scratching their heads — its also having a negative effect on the sudden glut of stock exchange-listed corporations hoping to ride the crypto wave. Companies like Longfin, Riot Blockchain and Long Blockchain all saw their stock prices decline 15% or more in the same time period. The newly-formed, publicly-traded investment fund, Bitcoin Investment Trust, is also down 14% this week.
So, what are some of the factors contributing to this sudden drop in price? Why has BTC ceased its trajectory towards infinity? The list of contributing culprits is long, and includes the following:
- China’s temporary ban on future ICOs, and more recently, its efforts to clamp down on domestic exchange activity in the bitcoin mining-heavy country is reshaping bitcoin’s dominance in the cryptocurrency sphere,
- Korea’s similar threats to ban all cryptocurrency usage has investors looking for other places to store their money,
- the launch of Bitcoin Futures markets and Bitcoin ETFs now allows big-time investors to place heavy bets against the price of bitcoin, and perhaps most of all,
- what Wall Street giveth, they shall taketh away, which includes securing 4- to 9-fold profits (or more) in the period of only 1 year.
Ever since the big shark money started pouring in at the beginning of 2017, bitcoin has done nothing but go up and up and up, to somewhat unrealistic levels. Despite bold proclamations by “top notch” financial analysts who may have had a prediction or two come true in the past, the reality of cryptocurrency – much like with any other investment – is that it can’t go up forever. This holds especially true for bitcoin, given the fact that its intrinsic value as a currency is extinguished when its average transaction fee puts it out of range of utility for the average person.
Though bitcoin’s record high of over $19k per coin left many traders/investors who happened to cash out at the right time very happy people, the simple fact of the matter is, at that high a level it was overpriced and no longer functioned as a currency. So, is this the beginning of the end for bitcoin and cryptocurrency? Hardly. This week’s price correction simply means that:
1. Bitcoin’s days of dominance of the total crypto market cap are now kaput;
2. Cryptocurrency as a whole was (and maybe still is) entirely over-valued by the market.
Moral of the story: this is no reason to freak out, friends. The price of BTC is already up more than $2500 in the last 30 hours, and long-time HODLers remain generally optimistic about the future of cryptocurrency and blockchain technology. However, if there is one lesson to be learned, its that the value of bitcoin ironically decreases as its price increases. When median transaction fees surpass $10 or so, bitcoin simply becomes unusable as a currency, thus the recent rush to re-brand it as “digital gold.” By doing so it takes the sweat off BTC to behave as a currency, even if this means it detaches the “currency” part from the term “cryptocurrency.”
Which crypto will rush in to fill the gap? We can’t say for sure, though at the moment its the older alts like Litecoin (LTC), Dogecoin (DOGE) and Dash (DASH) that have seen the biggest amount of merchant adoption after BTC, along with Ethereum (ETH), though the latter is used primarily for the launching of new coins and tokens (ICOs). Perhaps one day the online community will be willing to accept newer altcoins like Bitcoin Cash (BCH) and Cardano (ACA); we just hope that bitcoin’s failure to become the universally accepted method of online payments we all hoped it would be isn’t a giant crypto turnoff for the thriving, ever-growing internet-based economy.