Bitcoin's price dipped below $8,000 for the first time in 11 weeks in the midst of a broader cryptocurrency sell-off.
The volatile digital asset fell as low as $7,695.10 on Friday according to CoinDesk, marking the first time it has fallen below the $8,000 level since November 24. CoinDesk's bitcoin price index tracks prices from digital currency exchanges Bitstamp, Coinbase, itBit and Bitfinex.
The price of bitcoin recovered to $8,618 mid-Friday morning New York time.
Bitcoin performance in the last 24 hours
Source: CoinDesk
Multiple virtual currencies have dropped significantly as regulators voiced concerns about them and worries grew over suggestions that the price of bitcoin has been propped up by popular exchange Bitfinex.
On Wednesday, Indian Finance Minister Arun Jaitley warned against criminal activity associated with cryptocurrencies, and said that India would "eliminate" the use of cryptocurrencies in "illegitimate activities."
A number of critics have railed against cryptocurrencies like bitcoin, citing extreme price swings and worries of dubious activities associated with the crypto world, such as money laundering.
Notably, J. P. Morgan Chief Executive Jamie Dimon called the world's largest cryptocurrency, bitcoin, a "fraud," and said that he thought it would eventually "blow up."
Meanwhile, Berkshire Hathaway Chief Executive Warren Buffett told CNBC last month that cryptocurrencies were likely to "come to a bad ending."
Cryptocurrencies are decentralized, virtual currencies that are not backed by governments. They are underpinned by distributed ledger networks called blockchains, which maintain a continuously growing log of transactions across a network of computers.
After bitcoin's struggles last month, several analysts see other digital coins gaining ground in a cryptocurrency world that is trying to mature.
Bitcoin tumbled 28 percent in January amid a widespread sell-off that saw just a third of the 15 largest cryptocurrencies by market capitalization rise for the month, according to CoinMarketCap data.
"Altcoins are going to become more dominant," said CNBC's Jon Najarian, co-founder Investitute.com. He noted that bitcoin transactions are getting more expensive, and the cryptocurrency is turning into more of an investment asset than a unit of exchange.
"I love bitcoin. I trade it. I own some right now, but I own far more of ethereum, neo and some of the others," Najarian said. He expects the total market capitalization of cryptocurrencies will quadruple to $2 trillion this year.
The top three performing cryptocurrencies in January, among the 15 largest, were neo, stellar and ethereum, according to CoinMarketCap. Bitcoin's share fell from about 38 percent to 33 percent of the market capitalization of all cryptocurrencies, the website's data showed.
"I think ethereum will overtake bitcoin in terms of market size," said Nick Kirk, quantitative developer and data scientist at Cypher Capital, a cyrptocurrency trading firm. He expects more projects based on ethereum's platform will deliver throughout the year, such as coin for online casinos called FunFair, and Dent, a coin for buying mobile data.
But the majority of lesser-known cryptocurrencies fell in January. Ripple, which stole the spotlight from bitcoin in 2017 with a gain of 35,500 percent, lost half its value in January. Litecoin, which had soared in December, fell 30 percent last month. Monero, which focuses on user privacy, dropped 22 percent.
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"The sad truth with the cryptocurrency market today is that market capitalizations and price fluctuations are not necessarily correlated with actual user adoption traction and on-the-ground reality," said William Mougayar, blockchain investor and author of "The Business Blockchain." "Many other alternative currencies will have their moment in the limelight, but their lasting value will remain to be proven."
However, based on measures of ecosystem size, and the number of developers and adopters of real projects, Mougayar said bitcoin and ethereum should remain dominant and ripple has a "good chance" to be a leader in enterprise use cases.
The overall market capitalization of cryptocurrencies dropped 40 percent, to about $500 billion at the end of January, from a record hit earlier in the month of $832 billion.
"The major trend is [it] just appears that the big bubble is cooling down or popping," said Erik Voorhees, CEO of digital asset exchange ShapeShift. It's a "speculative cycle cool off."
He told CNBC on Wednesday that the recent sell-off could send bitcoin into a $4,000 to $9,000 range.
Change in market share of bitcoin and other cryptocurrencies over the last three months
Source: CoinMarketCap
The cryptocurrency briefly fell below $9,000 Thursday for the first time since late November, following reports that raised concerns about increased regulation in India and potential price manipulation at a major exchange. On Friday, it dropped below $8,000 for the first time since Nov. 24.
Worries about a crackdown in South Korea and tighter restrictions in China weighed on bitcoin's price in January. The U.S. Securities and Exchange Commission also stepped up its efforts to halt speculation in digital currencies, particularly token sales known as initial coin offerings, or ICOs.
"I think regulation is a recognition that something is both valuable and potentially dangerous," Najarian said. "I expect that ICOs will be the initial focus and eventually exchanges will be more and more of the focus."
As a result, Najarian expects half of the cryptocurrency exchanges in the world to close this year. But he expects more so-called cryptofunds to grow.
Financial research firm Autonomous Next also predicts the number of cryptofunds will jump to 500 this year, nearly triple 2017's year-end figure of 175.
Anecdotally, interest is growing. Najarian said his lawyer, who helps clients set up hedge funds and investment vehicles similar to private equity funds, was getting one call a month about setting up a cryptofund. In the last few months, the number of calls jumped to 50 a month, and since December the lawyer has set up three such funds a week, Najarian said.
"What we're going to see is an explosion," he said. "As they come through, they're going to change volatility and change markets because that's an awful lot of capital that's going to be charging into markets."
Down more than 25 percent week-on-week, bitcoin could be heading for its worst weekly loss since April 2013.
The sell-off gathered pace today with prices hitting a 10-week low below $8,100, but a relief could be in the offing, technical charts indicate.
Having breached the psychological support level of $9,000 earlier today, prices on CoinDesk's Bitcoin Price Index (BPI) fell to $8,056.51 at 11:39 UTC; its lowest level since Nov. 25. On a 24-hour basis, the cryptocurrency is down 14 percent, according to data source OnChinaFX.
Also, it is worth noting that BTC prices on Korean exchanges now trade at a discount to prices on western exchanges. For instance, BTC is changing hands at $8,227 on Coinbase's GDAX exchange, while on Bithumb, it's at $7,960. So, prices on Korean exchanges are trading at a discount of more than $250.
Till last month, the premium on Korean exchanges (known as the "Kimchi premium") was so high that it would distort the global average price of bitcoin. Thus, on Jan. 8 data source CoinMarketCap decided to exclude Korean prices from average calculations.
Bitcoin is not the only one taking a beating today. Ripple's XRP token has depreciated by 31 percent in the last 24 hours. Ethereum's ether token, bitcoin cash, NEO, and litecoin are down at least 20 percent each. Further, the total market capitalization of all cryptocurrencies together has declined by over $100 billion in 24 hours.
Since the start of the year, cryptocurrency markets have been hit by a string of negative news. For example, fears of tighter regulation in China and South Korea rocked the bitcoin freight train in January.
While things are looking bleak currently, the charts indicate there may be some glimmer of good new ahead.
Bitcoin chart
The above chart (prices as per Coinbase) shows-
BTC is fast approaching $8,052 (61.8 percent Fibonacci retracement of 2017 low to high).
The 200-day MA support is lined up at $7,855.
BTC risks breaching the falling channel on the downside.
The relative strength index (RSI) and stochastic show oversold conditions.
A daily close (as per UTC) below $8,052 would only strengthen the bears. It would also mark a downside break of the falling channel (represented by lines joining lower highs and lower lows).
However, as noted above, the daily indicators show oversold conditions. Further, the 4-hour RSI and stochastic also show the sell-off is overdone. Hence, BTC will likely defend the 200-day MA support seen at $7,855.
View
The sell-off could come to a halt in the range of $7,855 (200-day MA) and $8,052 (61.8 percent Fibonacci retracement of 2017 low to high).
Technical recovery could be seen, but gains above the $9,000 mark could be short-lived in the short-term.
Consolidation around $8,000 over the next 72 hours, if followed by a daily close (as per UTC) below the 200-day MA could revive the sell-off and open doors for $6,189 (Oct. 21 high).
Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Coinbase and Ripple.
End of slide image via Shutterstock
The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at news@coindesk.com.
Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Please conduct your own thorough research before investing in any cryptocurrency.
There may be a time to buy Bitcoin again, but it isn't until it breaks $5,000. That is the level when I will reevaluate what to do next.
Basically, the reasons to buy or own Bitcoin have been eroded, one by one, so we need to see prices correct and new reasons to support it to develop. Some of these issues are unique to Bitcoin, some apply more broadly.
Bitcoin as a medium of exchange. Not working at all. Unwieldy. Costly. The arguments against Bitcoin have switched from the "tulip" or mindless "bubble" arguments to actual discussions of whether Bitcoin is scalable and functional, and those arguments highlight that the technology is not delivering very well.
Bitcoin as a store of value. Still okay, but not as miraculous as some would have you believe. Fraud and theft seem quite common. Definitely great if you live in a country that is repressed or run by a dictator, less clear at this stage for noncriminal enterprises in countries with high degrees of personal freedom.
New buyers have to own Bitcoin. Fail. Futures did little to help new adopters, and ETFs seem unlikely to add to the new-adopter level. At the same time, it has become easier to own Bitcoin directly, making it less likely that there are people who want to own Bitcoin who don't already own it.
Bitcoin as a way to participate in ICOs. With the SEC turning its attention to Initial Coin Offerings, which have only proven themselves to be a great way for their sponsors to get rich, we could see a slowdown in ICOs. The ability to participate in ICOs was another bastion of Bitcoin support that has been hurt of late.
Bitcoin is interesting, has some value, but for now, I wouldn't touch it above $5,000, and unless some new information comes out, I suspect that price is too high.
Some of the other crypto currencies address some of the above concerns, but many rose because investors treated them as "cheap" Bitcoins, so they will be dragged down too in this repricing of the market.
