The rise and fall of bitcoin

The rise and fall of bitcoin

Context

Cryptocurrencies have witnessed a massive fall in prices since they hit a peak in December last year. Bitcoin, by far the most popular cryptocurrency on the planet, is currently trading below $7,000 as compared to its peak price of over $19,000 — a loss of two-thirds of its value from the peak.

How have crypto-currencies fared in 2018?

• Steep fall in prices
• Other cryptocurrencies have witnessed a similar steep fall in their prices over the last quarter as investors have pulled out of the market
• Remarkably, the present crash follows a year of extraordinary returns when cryptocurrencies saw their prices rise multifold owing to investors’ expectations over their future prospects.

What’s behind the crash?

Sceptics

To sceptics, the crash now will likely vindicate a belief that markets eventually mark down the prices of assets that have no real value, to zero

Enthusiasts

• Cryptocurrency enthusiasts, view the crash as just another healthy correction that is part of any asset’s rise over the long run. In fact, they point to similar steep crashes in the price of cryptocurrencies in the past that turned out to be short-lived
• Thus they see the present crash as a good chance to buy cryptocurrencies cheaply before their prices begin to rise again.

What’s the future of cryptocurrencies?

• Trapped in a downtrend: Technically, cryptocurrencies are still trapped in a downtrend which began in mid-December amid increasing fears of a regulatory crackdown by governments
• Downtrend might come to an end or not: Though unlikely, this downtrend may come to an end if investor sentiments suddenly change in favour of cryptocurrencies once again

No acceptance as a currency

• None of the cryptocurrencies, has yet proved its fundamental value as a currency that will be readily accepted by a huge population as a medium of exchange.
• This is in contrast to national currencies such as the U.S. dollar which are widely accepted by people as money

Threat to sovereignty

Governments across the world have also not been too keen on allowing cryptocurrencies to be used as alternative money as they view private currencies as a threat to their sovereignty

Conclusion

So cryptocurrencies, in essence, continue to be viewed as a gamble by most.