Bitcoin’s Fall Casts A Pall Over Crypto Market

Bitcoin’s Fall Casts A Pall Over Crypto Market
     The title above comes from Paul Vigna’s article in today’s/March 20, 2019 Wall Street Journal (WSJ), “Bitcoins Fall Casts A Pall Over Crypto Market.”  He begins by noting that “Bitcoin is in its biggest slump of its 10-year history. That is forcing even its most ardent supporters to shelve the dreams of global disruption, and simply focus on tightening their belts long enough to outlast the downturn.”
     “Signs of the cyrpto winter are everywhere,” Mr. Vigna wrote, “marking a sharp reversal since the manic highs [of near $20K] of 2017. The price of Bitcoin Tuesday was just below $4,000, down about 80 percent from a trading peak of about $19,800 in December 2017. The total market value of all crypto-currencies outstanding is down 85 percent from its peak in January 2018. And [trading] volumes on the largest U.S. [currency trading] exchanges have been falling steadily for the past 15 months,” according to the research firm, TradeBlock. The total value of all crypto-currencies is around $200B or so in 2019, a far cry from its January 2018 total of $832B.
     “Also wounded in the crash,” Mr. Vigna adds: “many companies and technology platforms that promised to transform businesses from Wall Street to Silicon Valley. The young industry was built, with billions of dollars raised through initial coin offerings, a method of capital raising that involves selling bitcoin-like tokens to the public. Those offerings have all but disappeared, chocking off a vital funding source for the heady tech projects that were supposed to bring crypto mainstream,” Mr. Vigna noted.
     “Bitcoin is driven largely by momentum; and, right now — it doesn’t have it,” Mr. Vigna writes. Attracting mainstream/retail investors, lack of regulation and government backing, no clear winner, cyber theft, and limited use, are critical roadblocks to bitcoin regaining its mojo. Ninety percent of 90 percent of the digital currency is held by one percent of the investors meaning manipulation is always a concern — especially in an unregulated environment — and even the speculators and frequent traders are moving on to other trades.
     “Bitcoin’s value is always driven by intensity of the demand and supply,” said Edith Yeung, a partner at 500 Startups, an early-stage venture fund. “If the miners stop mining, bitcoin will not function…..and the overall market will lose confidence. If there is no confidence, people will freak out and sell even more.” As  Steven Russolilo noted in the November 16, 2018 edition of the WSJ, “Crypto-currency miners, the outfits that solve complex equations to generate new digital coins, seem to be losing interest. The amount of computing effort expended by miners, known as the hash rate, has started falling.”
     As Mr. Russolio explained, “the hash rate rose most of the year [2018], even as crypto-currency prices slumped, suggesting people remained optimistic prices would bounce back. But, it [hash rate] has fallen sharply in recent weeks,” according to Blockchain Ltd.a crypto-currency-wallet service data firm – – that suggests fewer miners are jumping into the network.”
      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 users. 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,

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