Bitcoin, down more than 50% from its heyday of around 20,000 USD, has been stagnating at or below 8,000 for months. This is for a variety of reasons, and shows the extreme dichotomy between its fervent believers, and opportunistic investors who chug along for its rises and flee when things don’t look as shiny.
Raw volume, recorded interest in trading, new regulations in dozens of countries, robberies, bankruptcies, and a slew of new rules on advertisement for new coins ICOs (initial coin offerings), have caused its stagnation but not it’s decline to much lower since the scare earlier this year drove it below 10,000 and has left it there to rot. Why does it not collapse then? And why, if the hardcore evangelists will never abandon it, have they not driven its value back up amidst their calls of a true value of somewhere between 100,000 to 200,000 USD?
As an investment product, bitcoin is hot trash. It provides no returns, has no legal guarantees in the event of a collapse. It inexplicable rise last year was the primary reason that mostly amateur investors paid any attention to it, in addition to the constant stream of press coverage, social media ads (a la Russia), and celebrities trying to use their name to cash in on ICOs for worthless startups. Just like all bubbles, its rise was caused by unrealistic expectations and pushed on by the sheer social momentum of the bubble itself, mirroring the sociality and whimsical nature of financial markets of whose products’ values seldom reflect their actual revenue or ability to produce anything. Paradoxically, the reason the bubble stopped – was that the bubble just stopped, human interest faded.
The reason it has not dropped further, is because of those evangelists who will hold onto it forever, waiting for it to reach new heights which it never possibly will. It is also likely held by a number of people who bought near its peak, from $8,000 plus, who want to wait it out in hopes it will rise and they can profit. Unfortunately for them, without an irrational momentum to drive it up, and with no intrinsic value or usefulness, regulation and competing currencies will likely drive it down rather than up.
Here is a timeline of its moves since the new year:
- February 19th, several days of increases pushed bitcoin back past 11,000, up 57% over February 6th. This was in the context of some buyers assuming that it had hit a floor, and that regulation would not further push its value down.
- March 2nd, Mark Carney, of Bank of England, calls for UK regulation of cryptocurrencies, noting the “extreme volatility”
- March 8th, Japan’s financial regulator increased pressure and penalized six exchanges, responding to the hack of exchange “coincheck.” Two of those were ordered to halt operations. Bitcoin was at 9,699 at this point.
- March 14th, Indonesia Digital Asset Exchange claims they will soon surpass 1.5 million users, outnumbering the investors in their formal stock exchange, at 1.18 million. The digital exchange platform currently has 1.14 million.
- The same day, Google said that it would ban online advertisements for cryptocurrencies and ICOs (initial coin offerings). The price at this point was down to 8,238. The restriction wouldn’t take effect until June. Facebook had instituted a similar ban in January.
- March 27th, Twitter announced that they too, would ban ads for ICOs and digital tokens. The value at this point dropped to 7,964.
- March 29th, bitcoin dropped as low as 6,912 before rising back to just above 7,000. Reddit also announced that they would no longer accept payment in bitcoin.
- The same day, Thailand announced that they too would impose regulations on cryptocurrencies and ICOs. The regulations would be effective about three weeks later.
- April 6th, Mark Karpeles, former CEO of exchange Mt. Gox stated his believe that while cryptocurrencies and blockchain were viable, “bitcoin may have trouble evolving and keeping up”
Cryptocurrencies in this space will likely be swallowed up in the future by currencies linked, once again, to nations, as old bank-issued currencies also once were. If quantum computers also fall into the hands of hackers, the infrastructure underlying the blockchains on all current generation currencies will become utterly vulnerable too, and will fail. These currencies seem to be living on borrowed time.
It remains to be seen how long the prices will hover around this point, and which large currency will overtake bitcoin in the future, currently the largest holder of crypto market share.
Staff writer: Ari B