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How low can Bitcoin go?
Following the most recent fall in Bitcoin prices under $ 5,000 and the rapid decline in trade volumes after a multi-month consolidation, investors around the world are all asking this question. After reaching nearly $ 20,000 per coin a little less than a year ago, the great recession that has gripped the markets is showing some signs of reversal.
But developments in the blockchain ecosystem and in expanding use cases indicate that the price of Bitcoin is not necessarily the only determining factor contributing to the big picture of cryptography adoption. In reality, it's all the opposite.
Bearish or Surprisingly Bullish Development?
Depending on who you ask, the prospects for Bitcoin are slightly bearish or mostly bullish. Although past performance is by no means a guarantee of future prices, asset prices, particularly among cryptocurrencies, have shown cyclical models in the past that closely follow media coverage and search engine volumes.
In the last two big boom-and-bust cycles of bitcoin prices, some of which have seen a retracement of 80% -90% from the highs of life, for example, the bull market has seen an incredible moment to push Bitcoin to new historical highs.
In this context, a decline of less than $ 4,000 per currency, which will mark a retreat of about 80% from the highs, would not necessarily be the most pronounced decline in cryptocurrency investors. The 80% of the drops were canceled earlier in 2011 and 2014.
But benchmarking Bitcoin's prospects for historical fluctuations is not an absolute guarantee of reliability. In fact, there are other factors that suggest that future price appreciation could be more measured. As such, a prolonged period of weak and even negative returns it could prevail while the market continues to mature.
According to Thomas Graham, managing partner at TLDR Global, a cryptocurrency consulting firm, "We are in a period of transition, from an encrypted economy dominated by technology actors to one built on the adoption of cryptocurrency by institutions The liquidity of digital assets and traditional banks, funds and governments buy positions, the result will be a more stable economy, but part of the magic that has driven the last 10 years of growth will disappear. "
Others believe that the last fall in Bitcoin prices represents another opportunity. Echoing the above point of view, Agada Nameri, general manager at the iCapital alternative investment platform, believes that the latest crisis could be an excellent openness for institutions to participate. "While 2018 has seen a decline in market prices, the fundamentals of crypto-assets have constantly improved, in fact we believe that the currently distressed environment provides an excellent buying opportunity for institutional investors".
Forces external to the game
Despite some of the biggest supporters of the crypt are stopping for much higher prices in the short term, the price of Bitcoin remains firmly in the bear market territory. The last collapse of less than $ 6,000 per currency – and then $ 5,000 – on volumes substantially above average is consistent with a consolidation-based breakout. However, the pricing of Bitcoin in strictly fiat terms ignores other important developments and its leading role in the cryptocurrency arena.
Several analysts have pointed to the recent failure of Bitcoin Cash as a potential culprit in the collapse of prices. The fork, which divided the Bitcoin Cash community into BCHABC and supporters of BCHSV, saw the power move away from the Bitcoin network in the forefront of the hash domain among the new Bitcoin Cash propulsions. Each party is conducting a war with the aim of forcibly eliminating one of the forked currencies. This war has triggered an outflow of hashing power even from Bitcoin, creating stability problems, according to some.
The recent comments by Hongzhuang Lim, CEO of the blockchain investment company XSQ Global, have highlighted this phenomenon as a possible factor of insecurity within the ecosystem. Lim noted that "Bitcoin is still at the top of the rankings, has never lost the advantage: if it is a backlog, the industry must recover and trust that the value is stabilized, not give it a good name or the faith that is what it was intended to do: an organization without uncontrolled control. "
Progress in the face of downward trend prices A sign of maturity?
An area in which Bitcoin has for many aspects anticipated peers is a derivative instrument. Ads on the CME and other important global exchanges have unlocked the important Bitcoin short selling market. Just like many other mature markets, the ability to shorten a resource plays a fundamental role in facilitating the overall function of the market. Nameri reiterates this point, underlining that "short selling accelerates the incorporation of public information in prices and short sellers play a very important role in the process of price discovery".
However, it is still difficult to make this venture, with Lim adding these words of caution: "Short selling [requires the] faith of a market in a certain class of assets. So far it is difficult. Counterparty and settlement risks are clearly unresolved issues. Therefore, short sellers should be careful now. "
Although the additional benefit of short sellers has not yet been quantified, it could ultimately serve as another significant driver for institutional adoption, particularly for investors who are wary of the long-time volatility that Bitcoin and his contemporaries have been doing for a long time. Moreover, the gradually growing role of institutions in these markets will potentially help to make up for the delay left by retail traders burned by the latest boom-and-bust cycle.
What can we expect in the future
Will Bitcoin experience the same kind of explosive returns that have characterized its last bull market, or will it slip below $ 4,000 in the absence of industry-wide positive catalysts? Although both scenarios are possible, a deeper crisis is not out of the question when it comes to technical analysis and market fundamentals. But any direction follows the seminal cryptocurrency, this does not mean at all that the market is immature. In reality, the opposite scenario is more significant, in which Bitcoin remains a market leader.
"Bitcoin has always been the dominant crypto-asset and digital gold still accounts for more than 50% of the total market capitalization of the asset class," notes Nameri. "Most of the financial institutions that enter the market, like Fidelity or ICE, focus on Bitcoin because the thesis of the value shop is simple and in addition, Bitcoin is the encrypted gateway for investors who buy in coins. # 39; dominant asset in the market ".
