Has Bitcoin had its Day?

“Nothing is guaranteed in life (but) I’ve never been surer of something that this ends really bad for people.”

The ‘Wolf of Wall Street’ Jordan Belfort is convinced that Bitcoin is heading for a fall – although he admits it could still rise to US$50,000 first.

Belfort is far from the only harbinger of doom for Bitcoin – people have been queuing up to call time on the cryptocurrency that captured attention of the world in 2017, with Warren Buffett issuing a similarly gloomy prediction that the Bitcoin bubble will burst. But can it really be the case that Bitcoin has already had its day?

The end of the hype

Bitcoin’s rise in 2017 was certainly eye-catching. Jumping from US$1,000 to US$20,000 defied all expectations. Indeed this rise made everyone sit up and take notice – from experienced economists to rookie traders who could never have previously answered ‘what is a CFD trade?’ but now were keen to invest their cash. It was new, exciting and disruptive.

That initial rush is clearly over now. Once anything gets as big as Bitcoin, critics are always going to be out to knock it from its pedestal with intense scrutiny. The number of transactions – setting aside the price for the moment – has halved since December, even though the price has seen some growth.

That scrutiny has flagged up some facets that people didn’t like: the sheer energy required to mine Bitcoins, for example, was a little too much to stomach for an eco-conscious generation. Then there’s the association with wrongdoing. It might be harsh, but it’s clear that the secrecy and privacy offered by cryptocurrencies does much to attract them to people engaged in some pretty shady behaviour.

The rise of the rivals

Then there’s the fact that Bitcoin isn’t the only show in town. Newer and fresher cryptocurrency rivals have sprung up, catering quite well for those who feel they ‘missed the boat’ as the Bitcoin bubble expanded beyond their spending power. Ethereum is the most established of the up-and-coming rivals, while the likes of Litecoin and Ripple offer greater speed than Bitcoin.

The stronger – and more popular – these rivals become, the more it dilutes the dominance of Bitcoin as the king of the cryptocurrency jungle.

Regulation: The oncoming storm

Perhaps most seriously of all, however, is the fact that regulators are finally starting to catch up with the world of cryptocurrencies. Governments and Central Banks are beginning to flex their muscles, exploring and introducing new rules to curb the practices of the likes of Bitcoin after being caught largely by surprise.

While the new rules haven’t yet been as dramatic as some feared – with talk of outright bans at the turn of the year – the introduction of legislation does suggest that cryptocurrencies will be kept in check. South Korea has led the way so far, but others – including the European Union – have talked of following suit and each whisper and rumour sends a ripple through the market, impacting the price. As The Atlantic noted, “Perhaps that’s the most ironic thing about bitcoin: a system designed to distribute value away from individual authorities is exquisitely sensitive to mere rumors about individual regulators.”

So, is this really the beginning of the end for Bitcoin? It’s important to stress that while the hype has died down and rivals and regulation threaten to undermine its position, these facts don’t necessarily point to an imminent collapse. Even Belfort says there could yet still be some growth left in this story – and any price fall ought to be put in the context of the start of last year. The lowest price for 2018 so far was a little under US$7,000 – still significant growth from January 2017. The advent of regulation might even help Bitcoin, giving cautious investors the confidence that cryptocurrencies are are safe to use.

There are, however, some clear warning signs that no investor should ignore. Given the dramatic shifts we’ve seen so far, it seems that the only safe prediction is that unpredictability beckons for Bitcoin.

This is a sponsored press release and does not necessarily reflect the opinions or views held by any employees of The Merkle. This is not investment, trading, or gambling advice. Always conduct your own independent research.