In late 2017, the spike in Bitcoin value stopped just a few hundred dollars shy of $20,000 at the highest exchange rate a cryptocurrency has seen. 2017 was a year of cryptocurrency craze as the Bitcoin frenzy penetrated all depths all society. But in the course of 2018, the currency went through a steady decline that cast a shadow of pessimism among global investors. As of January 2019, 1 Bitcoin is valued at a mere $3,500, not even a quarter of its glory a year ago. Many believe this the end of an era. Had the bubble burst or was it just a blip?
The decline in Bitcoin follows a predicted pattern
Different predictions were made after Bitcoin went beyond $10,000 and even long before that. Among the chatter, Jason Wasik’s “Why The Bitcoin Bubble Will Burst In 2018” argument that short-term run-ups won’t last and Bitcoin value will continue to recede continues to explain the current decline as we enter 2019. He explains that its weakness can be reasoned to slow supporting infrastructures that makes transaction inefficient, as well as the fierce competition among different cryptocurrencies. Bitcoin might have been an early forerunner but it will not be the final winner, many say, much like Motorola and Nokia in the smartphone space. Will Bitcoin’s technological blocks spell its doom? While Wasik’s dissection zooming into the currency itself makes a solid point, experts looking at other comparable markets say otherwise.
The Bitcoin bubble is not a unique existence
Although they seem to have been forgotten, other industries have undergone what Bitcoin is going through. Since the existence of asset bubbles is not unique to Bitcoin, then correlations can be drawn from different sectors and compared to Bitcoin. Let’s look at a few historical examples.
In March 2000, the dotcom industry led by the NASDAQ composite achieved a valuation of 10x its original value. Like Bitcoin, in the years prior, the sector had experienced its fair share of highs and lows. Its valuation at the time was the highest it had ever achieved, but the dot-com bubble burst around October 2002, and the market plunged by close to 80%. In over a decade’s time, not only did prices recover, it soared to greater heights, so while Bitcoin prices might not recover in the short term, returns will come in the long run.
Aside from the dot-com bubble, there was also the US Housing Bubble. Owing to the bursting of the dot-com bubble, people sought after safe investments, which is why there was an increase in real estate investment. The real estate market experienced a boom, which rose to its peak in 2006. Once again the bubble burst in 2009, but latter year have shown a steady and strong climb again up until now.
These are two of many other instances where industries rose to their peak only to experience a steep decline in valuation. Does this apply to Bitcoin? To evaluate the growth, or dare I say resurrection potential of the sinking ship, let’s look under the hood of the cryptocurrency.
Can Bitcoin become completely worthless?
In theory, it can. There are systematic risks endemic to the design of the currency that can render it worthless under extreme circumstances. According to ExpressVPN’s Bitcoin Security and Privacy ebook, Bitcoin will only cease to carry any value if the internet is shut down, or all nodes and miners destroyed, or if Bitcoin is made illegal globally. If in the unlikely case that a majority of miners decide to mine empty blocks in scale, Bitcoin’s intrinsic value can also be brought down to naught.
With that said, only immense systematic destructions can damage the ecosystem enough to nullify the currency. Rest assured that these influences lie outside of the market’s control. A deflation in its exchange rate cannot annihilate its monetary value.
Bracing for hard times
But of course, its market value or much of the bubble rests not on Bitcoin’s technological basis but mere demand, and on that front, we advise investors to hold onto their Bitcoins for dear life and wait out the storm, here’s why.
Look forward to a time of stability
Part of the reason Bitcoin is experiencing such a hard fall is that it lacks stability. Many people have dumped their Bitcoin in fear of a loss of investment because of the decline in the value of Bitcoin. This is an unexpected but welcome blessing in disguise especially since, according to crypto experts, this particular decline in Bitcoin is not a bursting bubble. What Bitcoin needs most to attain stability is not a high number of users but a steady number of users. The current decline has managed to weed out most of the fence sitters and those who were in it for a quick pay-out. Therefore, those who remain could be seen as people who will stick to Bitcoin regardless of circumstance, which will bring about its stability.
Establishment of Bitcoin’s dominance
Currently, there are over 1600 cryptocurrencies in existence, and each of those is competing for dominance. While Bitcoin is at the top of the list of the most prominent cryptocurrencies, it is not the dominant one. However, it is one of the most influential cryptocurrencies and holds significant sway over the crypto market. Owing to that, a decline in Bitcoin – such as the one we are currently experiencing – leads to a decrease in the entire crypto market. Concurrently, a rise in Bitcoin should lead to a boom in the crypto market.
That is, in part, due to the belief in the bursting of the Bitcoin bubble. For instance, should the Bitcoin bubble burst, that would also mean that all other cryptocurrencies have a limited shelf life, thus affecting investment. So how will Bitcoin establish dominance? The answer to that lies in the rate of recovery. While it is true that Bitcoin’s rise and fall affect other cryptocurrencies, they don’t all get affected at the same rate. However, it is inevitable that a tumble as massive as the one afflicting Bitcoin currently will influence all other cryptocurrencies. Unfortunately, the rate of recovery will also be different, with Bitcoin at the lead. Additionally, the market will continue to experience fluctuations until Bitcoin stabilizes, at which point Bitcoin will have a significant edge in the market.
Signs of Bitcoin stabilizing
While most crypto experts have an opinion on the timeline of Bitcoin achieving stability, there isn’t a consensus. However, despite the lack of an accurate timeline of when Bitcoin will stabilize, some signs could help investors know when the time is right. Going by previous trends, Bitcoin will stagnate for a while after its decline, with inconsequential fluctuations. Soon after, there will be a period when it experiences a steady increase. It is at this point that you should look out for its stability. When it reaches an amount sufficient to offset its decline, it will then hold steady with inconsequential fluctuations yet again.
Using Bitcoin as a Currency
Don’t rush to realize your loss when the value of Bitcoin is in a steady decline. Instead, use the currency’s anonymity properties to your advantage while your coins are here to stay.
Many jumped onto the cryptocurrency bandwagon seeing Bitcoin as merely an investment and not a currency. Now is a good time to revisit that notion as understanding the power of a decentralized digital currency can be life-changing. Activists groups, oppressed individuals and atheists born into religious societies have relied upon Bitcoin to gather funds anonymously, speak up for their rights and establish their own life. This technology has empowered people to be leaders in social change in many ways. For the everyday user, Bitcoin can help protect anonymity and financial privacy online.
If you are a privacy-conscious user, you would already know that there is a real risk of being de-anonymized at entry or exit nodes of Tor. Bitcoin being an innately transparent system through a publically distributed database – the Blockchain, also adds to the risk of exposure. As such, every Bitcoin user requires some level of protection. Tor over VPN is a great option, which basically means using a VPN to obscure your real IP address before connecting to the Tor network, effectively protecting your IP and identity at the entry and exit nodes. To take privacy protection a step further, consider purchasing a VPN subscription within the Tor browser anonymously with Bitcoin. A range of privacy services such as VPNs accepts Bitcoin as a payment method on both their .com as well as .onion sites to make sure that users have the option of leaving no trails when subscribing to their products.
No one can say for certian whether the drop in Bitcoin this time will spell its end, but let’s just say that it’s unlikely to happen at this moment in time. Should you stop investing in Bitcoin? We’re hopeful that it’s also a no. Although, holding investments in a declining market is not a luxury most people can afford, dumping your Bitcoin is a move we would strongly advise against. Instead of hurriedly making your decisions, you should wait things out and see where the winds shift. In the meanwhile, if you’re feeling very anxious about Bitcoin losing all its monetary value, you can explore using it as a currency instead of an investment as you ride out the storm. Lots of privacy and anonymity services companies accept Bitcoin payments now, there’s bound to be means of Bitcoin trade right for you on the market.
Disclaimer: This content does not necessarily represent the views of IWB.