Why Bitcoin Is in a Downward Spiral

A picture taken on February 6, 2018 shows a visual representation of the digital crypto-currency Bitcoin, at the "Bitcoin Change" shop in the Israeli city of Tel Aviv. / AFP PHOTO / JACK GUEZ (Photo credit should read JACK GUEZ/AFP/Getty Images)
JACK GUEZ/AFP/Getty Images

The price of Bitcoin (BTC) continues to slide, with the decentralized digital currency suffering its most dramatically bearish market movements since 2014.

Thursday evening, Bitcoin dropped to around $6,800 per full unit — not quite as steep a drop as its low for the year in early February of nearly $6,100, but another setback on the path toward its all-time high of approximately $20,000, reached last December. By Friday afternoon, it slumped to an even lower $6,600. Since its short-term bubble popped in January, BTC has struggled to rise above $12,000 and has bounced downward throughout March. Some traders are predicting prices in the mid-5,000s in the short term — an all-time high first reached in October 2017.

So why is Bitcoin struggling right now? The speculation is frenzied — but at least for Americans, there seem to be some simple explanations for the trend.

A couple necessary disclaimers: this is not financial or investment advice. Exchanging your time or resources for any of these digital assets could result in a total loss, and you should be extremely skeptical of any pie-in-the-sky promises. Consider my biases: I own a small fraction of BTC and stand to gain financially if it increases in value.

Establishment Institutions Now Have the Tools to Drive It Down

There are plenty of people who hate — truly, madly, deeply — hate Bitcoin. Many of them are involved in the entrenched financial system, and they are extremely skilled traders with lots of capital to throw their weight around in Bitcoin’s young, volatile markets. CME Group launched a futures market for BTC in December, giving these players a powerful tool to profit off of the digital asset’s decline, buy it back at a lower price, and continue the cycle until every weak hand surrenders.

For the time being, the bullish believers who learned day trading with Bitcoin are getting outflanked and pummeled by these veteran futures traders.

Retail Investors Are Disenchanted

Bitcoin’ populist origins have given it astounding resilience and antifragility, but its userbase of cypherpunks, libertarians, and retail investors are evidently not powerful enough to oppose the bearish “whales.” One recent estimate says that around 20 million unique users — or ~0.28% of the world’s population — have adopted Bitcoin.

And many new participants in Bitcoin and the ecosystem of “altcoins” it spawned got burned big time by the December bubble. Coinbase, one of the top USD-to-Bitcoin exchanges, saw massive growth last winter, no doubt from word of mouth at the Thanksgiving dinner table. The price smashed through a spate of all-time highs starting with $2,000 in May, then $10,000 right as the userbase exploded in late November. Some technical analysts predicted BTC was on an unstoppable parabolic trend. Most newcomers thought they were getting very rich — very quickly. No doubt that many of them sold at losses as the market’s euphoria (soaring to highs of $20,000) turned to fear (careening down to $6,000).

And then there were the poor souls who lost money on ICOs (“initial coin offerings,” a wild west of arcade-token-meets-penny-stocks trading and outright scams) or got suckered into BitConnect, a “lending platform” and now-defunct Ponzi scheme. Almost everyone who wanted in on those get-rich-quick schemes had to exchange USD for Bitcoin, which they would then trade for these tokens.

All that lost money left a terrible first impression for most average Joes who had never heard of Bitcoin before December’s incredible bull run. And even though anyone who acquired BTC at its $4,000 all-time high in September is still up roughly 70% (or up nearly 700% if they exchanged for USD one year ago), it will likely take some time before public perception recovers.

Regulatory Uncertainty

The other hope for Bitcoin’s revival comes from more bullish whales, a la Peter Thiel and the Winklevoss twins, to enter the market. Bill Barhydt, the CEO of Abra, a Bitcoin investing app, says that institutional investors are becoming more interested in decentralized digital assets.

“There really is zero large-scale institutional money from the west in crypto right now,” Barhydt said in an interview with Business Insider. “That is happening in Japan. Once a large sizable chunk of Western institutional money starts to come in — watch out.”

However, many of these potential investors want to be certain of the rules and regulations before committing any capital to Bitcoin. Is it property? The IRS says so. Is it a commodity? The CFTC says so. Is it a security? The SEC has yet to say so for sure. Will there be an ETF? Coinbase is preparing one, but the SEC hasn’t approved anything yet.

What’s Next for Bitcoin?

If more large-scale investors take the leap into Bitcoin, the price could recover this year and resume a parabolic growth trend. Many of its historical “crashes” have bottomed out at levels far greater than the baseline support preceding a bull run. Several recent predictions have set targets of $25,000 or $30,000.

Yet if more long-term holders capitulate, the bear market could drag on for over a year, just as it did in 2014 after its top exchange MtGox shut down.

However, it may shock most readers to learn that there’s more to Bitcoin than its price in fiat dollars. At nearly ten years old, the fundamentals of the technology are growing stronger. The hardware used to mine BTC has long been monopolized by a single Chinese company, but new competitors, including Samsung, are finally entering the market — which ought to increase the security and decentralization of the network. Just weeks ago, developers released the first major public beta software for Lightning, a proposed second-layer scaling solution to overcome BTC’s single-digit transactions per second limitations. Even without Lightning, Bitcoin transactions are again cheap and fast enough for everyday use, thanks to upgrades such as transaction batching and Segregated Witness.

And as the developers continue their slow, meticulous work, this bearish market will give people unfamiliar with Bitcoin a good opportunity to research the technology and decide if they believe in its long-term value proposition — without the temptation to acquire it out of hype or FOMO.

Ezra Dulis is Deputy Managing Editor of Breitbart News. Follow him on Twitter and on Steemit.

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