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."
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.
Crypto investors are seeing red this week. Bitcoin plunged to two-month lows on Thursday, dipping below $9,000 for the first time since November. At the time of writing, Bitcoin had bounced back up to the $9,200 level, down from weekly highs just above $12,000. This week has seen coins across the board in the red — a sign that investors are jumping ship to fiat currencies this time instead of swapping into altcoins as we’ve seen in the recent past.
At the time of writing, the total cryptocurrency market cap weighed in at $459 billion, down from January highs around $830 billion. It’s a contraction to be sure, but not a low for the last 30 days (that low came on January 18).
Is this the bitter end for Bitcoin? For cryptos? Well, no, probably not. Get your head screwed on right and you’ll see that (for better or worse) many coins have seen unprecedented growth in the last six months to a year, even with Bitcoin’s price halved from holiday highs closer to $20,000. On this day last year, Bitcoin was sitting pretty at $982. At the height of December’s craze, most reasonable crypto-watchers could agree that the price was overheated and there was only one way for it to go in the short term. Still, in the thick of the current correction, Bitcoin’s longer-term growth is anyone’s guess.
Cryptocurrency die-hards expecting the price to bounce back, even partially, will see these tanking numbers as the perfect entry point for getting in low and maximizing gains. Late speculators who got in during the mass crypto hysteria of the holiday season aren’t likely to have such steady hands, a factor that’s likely contributing to the slide.
So what’s causing the slide to begin with? As usual, no one thing can be blamed for Bitcoin’s current downturn, but recent skittishness around a subpoena for Bitfinex and concerns around Tether — a kind of cryptocurrency counterpart to USD that matches the dollar one to one — probably factor in. Recent news that Facebook would ban ads for ICOs probably didn’t help either. And it seems like every day a new Ponzi scheme gets busted, throwing yet more doubt on the credibility of plenty of less than legit ICOs.
In India, new comments this week from Indian Finance Minister Arun Jaitley were widely interpreted as a harsh crackdown on cryptocurrency, inspiring broad regulatory fears on an international scale. “The government does not recognize cryptocurrency as legal tender or coin and will take all measures to eliminate the use of these crypto-assets in financing illegitimate activities or as part of the payment system,” Jaitley said during a budget speech in which he also expressed interest in blockchain technology. While his comments focused on illegitimate activity, reports suggesting the statement signaled a broader cryptocurrency ban indicate a need for further clarification from Jaitley. In South Korea, previously announced “know your customer” rules on real-name cryptocurrency trading also went into effect this week.
These growing pains are far from surprising. As cryptocurrencies mature — assuming they continue to do so — regulatory “bad” news will become more common as countries across the globe struggle to accommodate their citizens’ sudden interest in digital currencies. Unsurprisingly, that regulatory interest creates a sense of foreboding among cryptocurrency enthusiasts. Fear, perhaps justified fear for many speculators with too much to lose, amplifies each new regulatory revelation, even when the news is good for the long term adoption of digital currencies. But for cryptocurrencies to grow out of the current scam-laden chaotic era, a thorough house cleaning is healthy.
Bitcoin and other cryptocurrencies have also looked less responsive to positive news in the latter half of January compared to their relative buoyancy during December’s dizzying highs. Then, every little positive news blip seemed to push the prices higher. It’s also worth remembering that even beyond news cycle price influence, Bitcoin has seen a few mid-January dips before, though 2017’s Bitcoin behavior certainly broke from any seasonal patterns of the past.
Bitcoin aside, some altcoins might just be adjusting from overheated, overhyped December highs. Ripple is a good example of this, hovering around $1 Thursday, a price that’s five times its November value and only looks bad after XRP flew a bit too close to the sun with sudden early January highs above $3. Ethereum is also faring pretty well, all things considered, down from all-time highs above $1,400 but holding most of its newly built value after doubling in price from December prices around $500.
It’ll be interesting to see what happens as we move into next week’s Senate Banking Committee hearings on cryptocurrency. Titled “Virtual Currencies: The Oversight Role of the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission,” the open hearings will air on February 6 at 10:00 Eastern time. It’s possible that the upcoming discussion in Congress has traders nervous, but ultimately variables from all over the globe combine to affect the market every day.
For anyone considering riding out the current correction, a little historical perspective — in this case, even a few months’ worth — could go a long way.
Disclosure: The author holds a small position in some cryptocurrencies. Regrettably, it is not enough for a Lambo.
Featured Image: Bryce Durbin
