All good things must come to an end – and bad things, too. Bitcoin has had a hell of a ride over the last year, but that all seems to be over as almost 60 per cent of its value has vanished in the last month. Enthusiasm in the cryptocurrency market is low as Bitcoin dropped below $10,000 for the first time since November.
GIF Source: The Slow Down Show
According to the popular cryptocurrency app Coinbase, the price of Bitcoin slumped to $US7540 ($9422) just before noon yesterday before picking up to around $US9000 ($11,247) early this morning. The run of thousand-per cent increases was never sustainable, and even the most dedicated believers in the cryptocurrency revolution didn’t think the high of almost $25,000 would hold in the short term. But the common belief among the community has been that $12,500 was as low as it would go. Irrational exuberance inevitably invites corrections, but it’s beginning to look like we’re witnessing a massacre.
In a matter of 24 hours, about $38 billion was wiped off of Bitcoin’s market cap. A look at the charts on CoinMarketCap shows that all but five of the top 100 cryptocurrencies are down, most by double digits. All told, Bitcoin has lost $222 billion from its high in December.
It isn’t difficult to pin down why this is all happening. Even if you truly believe that blockchain technology is the future and decentralised currency will eventually find its footing, it’s impossible to ignore the fact that we’ve seen nothing but bad news for the whole crypto-sphere.
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What’s perhaps the most troubling for long-time bitcoiners and newcomers alike is the almost daily developments in government regulations to address cryptocurrency. As financial analyst Nouriel Roubini, of Roubini Macro Associates, told Bloomberg, “Pretty much every G20 policymaker is talking about a crackdown.” This week saw officials in India indicate that they will be introducing regulations to completely eliminate payments with cryptocurrency in their country, and they made it official that India does not recognise Bitcoin as a legal tender.
US Treasury Secretary Steven Mnuchin also said this week that he would like the members of the G20 group to discuss cryptocurrency regulations when its annual summit is held in March. The US has been mostly hands-off when it comes to cryptocurrency, electing to wait and see what happens. But the IRS still wants its cut, and investors are getting their first taste of what it’s like to pay Uncle Sam some of that free money. A visit to his accountant prompted one redditor to exclaim, “Fuck taxes man. This is so fucked it’s like I didn’t earn anything.” And it isn’t just the federal government that wants its taxes; states are getting in on it, too. A bill in Arizona that would require residents to pay the state a portion of their earnings advanced toward becoming law this week.
While hugely successful companies such as Facebook are trying to purge their services of cryptocurrency scams, floundering companies such as Kodak have jumped at the opportunity to attract investors by slapping blockchain buzzwords onto their business plans. Kodak was supposed to launch its own initial coin offering (ICO) on Wednesday, but as more information was revealed about the company’s plans by the New York Times, Kodak said it needed more time to vet potential investors. Most of the gains that Kodak’s stock made after its blockchain announcement are now gone.
The most infamous company capitalising on the frenzy, formerly named Long Island Iced Tea Corp, appears to have had a change of heart and on Friday it announced that it won’t be buying 1000 cryptocurrency mining rigs after all. At the moment, the company’s name is still Long Island Blockchain.
Nobel Prize-winning economist Robert Shiller has insisted that Bitcoin will eventually “totally collapse”, even if it takes 100 years. At the moment, it’s on track to reach that goal much more quickly. Whether the “Bitcoin is bogus, but blockchain is real” crowd will be proven right remains to be seen. Blockchain is, without a doubt, a unique technology, and a lot of people are working interesting applications for it. The problem remains that the thousands of ICOs that have cropped up have their values inescapably entwined with Bitcoin. Maybe they will be able to disentangle that co-dependent relationship, but the expensive growing pains are certain to take a long time.