April 1, 2019 Article

Bitcoin Closes the Year at Below $4000, Will this Persist in 2019?

In November 2018, Bitcoin traded below the $4000 mark for the first time despite optimistic predictions that the market would experience an upsurge by December. Trading at $3600 on December 30, the price of this leading cryptocurrency is remarkably close to the lowest it has ever traded since October, 2017. Market values have improved since the November crash and has seen a 9 percent increase in value following a slump that lasted two weeks.

Bitcoin has had a rather tumultuous ten-year ride, experiencing sudden rises and falls in terms of value. Towards the end of 2017, after a bearish run, the value hit a high of $20,000. The first quarter of 2018 was more of the same, until the Coincheck hack that cost investors upwards of $530 million. The price has fallen since then, but it has managed to sustain a value of roughly $6,000 until its recent crash.

Falling Prices
Stephen Innes, Asia Pacific’s head of trading, believes that many people are still participating in cryptocurrency trading. According to him, if Bitcoin's value dropped to the $3,000 mark, it would become a monster and people would be exiting the trading floor because it means that by January of 2019, the digital currency would have the potential to reach a low of $2500.

Just recently, the Securities Exchange Commission (SEC) cracked down on the leaders of two initial coin offerings (ICOs) that were operating illegally, engaging in the sale of unlicensed securities. The aftermath revealed insecure investors who sold off millions of dollars’ worth of digital coins, leading to a catastrophic drop in the value of Bitcoins and other major coins. The inability of SEC's Commissioner, Hester Peirce, to convince other members of the agency into giving a green light for more exchanges has hit the public unfavorably.

The other reason for the fall of Bitcoin value was the hard fork experienced in November as Bitcoin Cash spurned a completely new digital coin. Half of the $4 million market capitalization was split between BTC and its new offspring causing many investors to fear the worst. Falling in value by over 80 percent, Bitcoin prices are a far cry from their $20,000 high in December 2017.

Beyond the Bitcoin Cash fork, Bill Papacharalampous, CEO of BlockCommerce, believes slow adoption and speculation could have triggered Bitcoin's price crash witnessed in recent months.

He says, "To put it simply, two main things are responsible for the current drop in cryptocurrency prices. First, we must take into account the overall lack of mass adoption to date. Secondly, the fact that most cryptocurrencies and tokens are based solely on speculation and forecasts with no real-world application is equally contributive. Without mass adoption among the mainstream consumers, cryptocurrencies will never reach the proper market saturation needed to establish a less volatile ecosystem."

And his company is on the path to addressing some of these issues. "This is why we created BlockCommerce, as we believe that cryptocurrencies need to add real value to the masses and to the everyday consumer if they want to not only survive but also to contribute to a more stable global economy. An industry that I strongly believe can be that “vehicle” for bringing cryptocurrency adoption to the masses is eCommerce. This is because commerce in general is not only where millions and millions of transactions happen daily, but where the people are and a great opportunity for adoption on a global scale."

However, the market remains optimistic that if the value passes $3,700, it could turn around completely. Other critics are of a different opinion as the same bullish behaviors that drove prices to the $20,000 mark at the start of the year are not readily evident.

Predictions
A lot, maybe too much, has been said about the projected closing value of Bitcoin at the end of the year. In its short ten-year life, this digital asset has “died” over 300 times already. This is what makes financial pundits a bit optimistic, as they eagerly believe in the implausible by stating the value could increase to $40,000 by year end.

Tom Lee of Fundstrat predicted that Bitcoin would hit the $25,000 mark by the end of 2018; he reduced this projection to $15,000 last month. Considering Bitcoin's current price of $3700, this sounds overrated. But it is modest compared to predictions made by other players like Michael Novogratz, whose forecast was $40,000 by the end of 2018.

These predictions were largely based on a bullish run, one that is yet to be seen. December has come to a close, and Bitcoins have not closed the year at a favorable high. Even so, there is still hope that this digital asset is far from earning a spot in the financial obituary.

 

 Disclaimer: David Drake is on the advisory board for most of the firms mentioned or quoted in this article.