My, how the worm has turned. The surge of Bitcoin over the past several years has been nothing short of meteoric — until now. After rising to $20K per bitcoin in 2017, Bitcoin is trading this morning (Monday/Nov. 19, 2018) — down $300, to $5,262, less than what it costs to produce a single coin at around $6K per coin. Last week, bitcoin “took an abrupt turn, down 14 percent in just one four-hour period, with other digital coins experiencing similar losses,” Victoria Bell wrote on the November 14, 2018 edition of the DailyMail. McAfee’s Ethereum, fell $182.41, with other smaller firms like Litecoin, and XRP dropping more than 17 percent. “The slump has caused a wave of selling in the digital currency and other crypto assets in what has been a prolonged market slump that began earlier this year,” Ms. Bell wrote.
“The selloff pushed the sector’s market capitalization to under $200B for the first time,” according to industry tracker, Coinmarketcap.com. Ms. Bell notes that “many experts have pointed to the ‘hard fork,’ which means the Bitcoin currency will be split in two, causing investors and traders to be uncertain heading into 2019. Some have speculated that investors could be leaving Bitcoin to raise funds to buy Bitcoin cash after it splits, hoping for the new coins to go up in value,”she added. “For the last few days you could see the consolidation happening, and the price was moving on to the downside,” said Naeem Aslam, analyst at ThinkMarkets, a multi-asset online brokerage.
Bank of England (BoE) Governor Mark Carney told Bloomberg News that cryptocurrencies such as Bitcoin are “failing as a form of money,” and have shown clear signs of being a financial bubble; but, their technology could improve the financial system in the future. “The long charitable answer is that cryptocurrencies act as money, at best, only for some people; and to a limited extent, and even then, only in parallel with the traditional currencies of the users,” he said. “The short answer [for now] is that they are failing.”
In a September 13, 2018 article in the Wall Street Journal (WSJ), Paul Vigna wrote, “”the cryptocurrency rout that began early this year with the popping of the Bitcoin bubble has only gotten worse, and there is little sign things will get better soon. Last year’s boom was marked by both mainstream interest in bitcoin, and an explosion in the number of alternative cyrptocurrencies and digital tokens. These [phenomena] dramatically increased opportunities for speculators [and manipulators], and heightened volatility in the nascent market,” Mr. Vigna observed. “The problem,” he adds, “is that such speculation wasn’t matched by concrete activity. More people may have had heard of bitcoin than a year ago; but, even the ones who hold it, still don’t have much to do with it — besides trade. The selloff in recent months largely reflects doubts about the practical utility of cryptocurrencies,” Mr. Vigna wrote. “It is still difficult to use bitcoin, and other, more established digital currencies to pay for goods and services, causing some investors to question their potential to transform commerce,” especially in the short, to mid-term.”
“Many ‘crypto-tourists,’ who bought bitcoin and other [digital] tokens in 2017, when prices were soaring, lost faith in the trans-formative potential of digital currency,” said Dan McArdle, co-founder of cryptocurrency research firm, Messari. “We’re just in one of those periods where the hype has died down.” “Take Ether, the in-house currency for the Ethereum network: The project took bitcoin’s core concepts, and adapted them to a platform built to support apps, similar to Alphabet Inc.’s Android operating system,” Mr. Vigna wrote. “The value of ether soared from $8 in January 2017, to $1,400 by January 2018 as investors sought to profit on Ethereum’s potential. Yet, there is still little commercial activity, two years after its launch. There are about 900 live “dapps,” — or decentralized apps on the Ethereum network, with several hundred more in development, according to data from the website, State of the Dapps. But, there are only 9,000 daily active users,” he added. “That isn’t a lot of activity, and helps explain the huge fall in value ether has experienced. At its height, ether was worth $133 billion. Today, it is worth around $19 billion.”
As Mark Twain once said, “the news of my death has been greatly exaggerated.” Are we witnessing the ‘death of bitcoin?’ I doubt it, at least for now. But, I am a bear on the longer-term outlook for bitcoin and digital currency — and, I have posted several articles on this blog in the past two years saying as much. A central premise of bitcoin and digital currency — besides anonymity — is, it isn’t tied to any one government, or entity. One of its very tenants is, decentralization, and lack of government control and/or oversight. But, this lack of regulation and oversight, has led to market manipulation — as the top one percent of bitcoin holders, control 90 percent of the currency. In order for bitcoin and digital currency in general, to gain credibility and attract more investors — and even get its own ETF — regulation will have to come. And, governments are also going to want, or mandate their share of the ‘taxes’ based on the transactions that occur. That is anathema to the digital currency faithful; but, it is likely inevitable if digital currency is ever established as a respectable and dependable means of financial transactions. Which likely means…..governments will do what governments will do. As they did with the railroads and the utilities, etc., governments will appropriate. I am not saying that bitcoin cannot go higher in the short-term; but, a longer=term target for the currency is likely closer to $100 per coin — than it is $25,000 per coin.
The early investors in the railroads in the mid-1800s in the U.S. got filthy rich if they cashed out — much as early investors in Bitcoin. But, late investors in railroads were left — ‘holding the bag.’ We could be witnessing something similar with Bitcoin and digital currency. Just one man’s opinion. RCP, fortunascorner.com
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