As a newly spouted thing, bitcoin has sustained its rapid development, stimulating industry investors' adrenal hormone. Killed or favored by so many countries, bitcoin derived investors puzzled as well as thrilled. The highly controversial bitcoin, once again, has faced several slumps. Will cryptocurrency become an effective means of hedge? No matter what the answer is, it has been severely hit now. In just 7 days, price of bitcoin has fallen by over 1,700 dollars, down 30%.
Fall, Fall and Fall, Where Is the Bottom?
On November 14, price of bitcoin remained around 6,400 dollars. But in the recent week, the price fell by 38%. At 04:30 BJT on November 21, price of bitcoin on Coinbase platform dropped below 4,100 dollars, a record low for 13 straight years. In the morning of November 25, bitcoin, once again, met a short-term large drop of 14% to nearly 3,800 dollars, a record low since September, 2017. At around 18:30 of the same day, it declined even below 3,500 dollars, a record low since August, 2017. In December, last year, the cryptocurrency once peaked above 19,000 dollars. However, from the beginning of the year till now, bitcoin has slumped from the peak, by 80%.
According to Bloomberg's analysis, given competition among currency circles and chaos in stock exchanges, there has been an enhanced supervision by the authorities. U.S. Department of Justice started investigating cases on suspected manipulation of bitcoin at the end of last year. Apart from that, statement on digital asset securities issuance and trading issued by U.S. SEC may also have contributed for the fall in bitcoin price.
Stephen Innes, head of trading for Asia Pacific at Oanda, told Bloomberg that bitcoin price will fluctuate between 3,500 dollars and 6,500 dollars for the coming days, but currently it has not yet fallen to the bottom.
The Rising Wind Forebodes the Coming Storm
Repeated slump of bitcoin price nationwide is merely an epitome of the market of digital currency. According to CoinMarketCap, among world’s top ten cryptocurrencies, BCH, XLM, XMR and ADA all dropped by over 10% in the past 24 hours. Merely in the past one week, 73 of top 100 digital currencies in global market value fell by over 30%. Besides, number of cryptocurrencies in the world started to shrink slightly, and total value of digital currency also declined sharply in the recent two weeks.
Other data shows, as of November 18, 2018, there were 2,081 global encrypted digital currencies. The number of encrypted digital currencies continued to decrease slightly in the recent month, while in trading market, the number continued to increase to nearly 16,000. In terms of bitcoin, its declining trend has a domino effect, affecting the market for chipmakers, mining pools and mining machines. Its players and speculators all suffer a lot.
First, stock price of enterprises relating to cryptocurrencies market has been on the decline recently, no exception for NVIDIA and AMD, video cards providers for Bitcoin minors. Besides, mining pools, inevitably, suffer from the disaster of shutdown. On November 6, China's oldest bitcoin mining pool BTCC, said, in its news release, that BTCC pool would shut down all mining servers on November 15 and cease operations indefinitely from November 30.
Apart from that, bitcoin mining machines have triggered the “mining disaster” as the price is plunging. Many small and medium-sized mines have no choice but to resell mining machines, leaving cost of investment barely coming back. According to a report, the mining machine priced RMB 20,000 one year ago, now merely values about RMB 1,000 at a second-hand price. Partial discarded mining machines in small Bitcoin mines are piled up as small mountains and even are sold at the price of scrap metals.
Thousands of bitcoin players and speculators have suffered too much. Some Senior players have announced on platforms such as Microblog, WeChat Moments and Bitcoin Forum that they have gone bankrupt after losing over 85% of their assets. Some of them, for instance, only hold 2,000 from the original 100,000 bitcoins.
Collapse of Bitcoin Indicates Virtual Currency Investment Is Losing Its Popularity
Put forward after the 2008 financial crisis, the concept of encrypted digital currency was based on the idea that trust-based traditional financial system proved invalid. The process of creating bitcoins resembles ‘mining’; similar to precious metals exploitation; and enterprises devote lots of capital to refine gold from the earth. In the world of bitcoin, “mining” means that one should first invest large sum of funds to computer hardware and then compete with other “miners” to solve a complicated mathematical problem via computer. Bitcoin project also stimulates that the number of exploited bitcoins confine to 21 million at most. The limited supply in the future decides the current bitcoin price, so does the difference between supply and demand.
Then, what has caused the latest collapse of bitcoin market?
Rome was not built in a day; similarly slump of bitcoins wasn't due to a single factor. Fundamentally speaking, bitcoin market is a capital market and the market size of global digital currency is rather small. If large capital holder hammers the market, currency price will fluctuate sharply.
As to the industry, infrastructure of blockchain is not sound and blockchain project faces severe bubbles. Practitioners who continue to raise market expectations now suffer reality blow, and people's confidence in the bitcoin market is severely hit. If we trace back to the blasting fuse, industry's recent war of HashRate has shaken some people's confidence and aroused fear, causing market fluctuations; and BCH bifurcation, direct competitor of bitcoins, should shoulder due responsibility.
Furthermore, bitcoin's correlation with currency has not yet been legally recognized, and it has poor performance toward pressure and market crisis. According to relevant regulations formulated by the PBoC, Bitcoin, not issued by the monetary authority, is not the currency in real sense, with no compensatory and mandatory currency attributes. And by nature, it is a specific virtual commodity and doesn't have equal legal status as currency. Hence, it cannot and shouldn't circulate in the market as a currency.
What's more, recently, some people absorb funds via concepts such as 'virtual currency, virtual asset and virtual asset' , PBoC and relevant regulatory departments once delivered articles to call for suspension of all types of token from insurance and financing, reminded the public to rationally treat blockchain and upheld right concept on currency and investment. Hence, as countries including China have tightened regulatory policy on virtual currency such as bitcoin, and space for bitcoin’s regulatory arbitrage has been further compressed, which further shakes industry investors’ confidence.
When Will Bitcoin Find Its Way Out?
As early as in 2014, Warren Buffett warned that we should get away from bitcoin for it is just an illusion. This May, Buffett said again, in an interview, that bitcoin was more toxic than rat poison. No wonder what players and miners in the circle of bitcoin will think when they see Buffett's early warning?
Bitcoin buyers who hold this kind of digital currency expect that the price could rise up. However, the whole bitcoin system remains to be tested, thus investment is equal to experiment. Therefore, digital currency belongs to a high risk field, whose value remains to be understood, regulated and managed. There is still a long way to go before virtual currencies become mainstream currencies.
Hence the questions of: what's its prospects of bitcoin's survival; Will it rebound after touching the bottom or just withdraw from the historical arena; Whether its development will gradually come back to the right track after so many people go bankrupt and become rational toward investment; are creating a feeling of fear and uncertainty among the people.
The future is unforeseeable. But where there is profit, there will be some followers, and that is an iron law.
As illustrated in The Capital, once there is appropriate profit, people will muster up their courage to pursue it. If the profit only accounts for 10%, it will become accessible; if it rises to 20%, it will become popular; if it amounts to 50%, it will be used no matter what the cost is. If it climbs to 100%, it will drive people's hot yet reckless pursuit. If it reaches 300%, people will venture to commit crimes, even take the risk of gibbet.
As the old saying goes, where there is a risk, there is a chance. Today, when price of bitcoin falls to the valley, not a few people, I'm afraid, are waiting for the chance to take the opportunity. As far as we know, today, there are still some people attempting to make money through investing in mining machines. For them, they are waiting for the rise of currency price, and hope that after surviving the winter, they will embrace the Spring.
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