Is The Bitcoin Boom Over?

If you invested in bitcoin years ago, you had a chance to make a relative fortune late in 2017. After a few years of cryptocurrency proponents predicting that bitcoin would eventually rise to high values, we finally saw it.

Bitcoin came very close to touching $20,000 toward the end of last year, having started 2017 around $1,000. At one point bitcoin jumped 10 percent in 24 hours to top $19,000. It was pretty incredible to watch, and undoubtedly it made a lot of investors a lot of money.

Hardly a month after these record highs, however, bitcoin has crashed back down to Earth so to speak. Prices move quickly, but at the time of this writing bitcoin is now back under $9,000 (and briefly dipped beneath $8,000 for a time). That kind of drop makes it fair for investors to ask: is the bitcoin boom over? And if so, why?

We can’t say for sure that bitcoin won’t rebound. This has been an extraordinarily unpredictable asset for the last year or so, and that makes it easy to imagine just about any scenario. Bitcoin could continue to plummet back toward $1,000, or it could ebb and flow for a while before skyrocketing once more to December-like peaks.

This is to say, one “boom” may be over, but another could always be around the corner. When it comes to why bitcoin has crashed back down to Earth however, we can at least point to a few possibilities.

Regulation Is Tightening In Some Big Markets

Bitcoin regulation has always been very difficult to define, simply because it isn’t universal. Additionally, too many analyses fail to differentiate between “regulation” and “legality.” It is true, as one overview pointed out, that only a handful of countries have declared a ban on the usage of bitcoin (some of them being Bolivia, Thailand, Ecuador, and Indonesia).

However, other countries with more influence on the worldwide cryptocurrency trade have at least begun to impose tighter regulations on how easily bitcoin can be used. Most notably, a number of East Asian countries have started working to make it harder for people to trade cryptocurrencies freely, which may well be suppressing demand and thereby lowering the price.

Price Manipulation Is A Growing Concern

Many people who buy into cryptocurrency, and particularly amateur investors, hear that bitcoin is decentralized and encrypted and assume that as a result the market is above manipulation. This is a nice idea in theory, but unfortunately it just doesn’t work this way.

Citing reporting from The New York Times, Vanity Fair put out a very interesting article suggesting that some smaller cryptocurrenceis have been used to manipulate the overall value of bitcoin and other currencies.

Using the example of Tether, a currency from the exchange Bitfinex, it suggested that when cryptocurrency prices drop, millions of dollars’ worth of new Tether are created, thus propping up the whole market temporarily. As one person quoted put it, this reeks of price manipulation.

Futures Trading Brought In The Bears

Perhaps the most technical explanation for bitcoin’s plummeting price is that futures trading was introduced. This opened the door for naysayers to participate in the market for the first time. Previously, the bitcoin market was dominated by people who truly believed in the product, or were at a minimum excited by its potential. With futures trading now a reality surrounding cryptocurrency, however, the “bears” and naysayers have been able to drive the price down simply by acting on their own expectations.

This is a disruption that could conceivably correct in bitcoin’s favor over time, but in the meantime it’s at least a partial explanation for what we saw in early December.

Trying to determine whether or not the bitcoin boom is over in any definitive way is, at this stage, a fool’s errand. These at least are some of the reasons for its recent decline, however.