The gift that keeps on taking, Bitcoin sinks again… below $4,000

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The blood letting is not stopping soon as Bitcoin plunges once again over the weekend and is now trading for less than $4,000 for the first time since September 2017. The cryptocurrency fell to as low as $US3,519.94($4,874) on the Bitstamp platform, after earlier falling to a 14-month low of $3,462,57.

It has lost 74 percent of its value so far this year, after hitting nearly $20,000 in December last year. Most other cryptocurrencies are faring just as poorly or worse, and in total, more than $700 billion in market cap has been wiped off the cryptocurrency market since the late-2017 peak.

Bitcoin has been around for 10 years now, but we still haven’t found one use for it. At its most grandiose, it was supposed to replace the U.S. dollar as the way people did business around the world.

Miners of bitcoin likely continue because they think mainstream adoption will make the price go up a lot more, but the fact that it’s going up as much as it is means that it’s not going to get adopted by anyone but the most fervent believers. It’s getting hoarded instead. This, in turn, creates a natural boom-bust cycle that’s been amplified by what a few academics say looks like repeated price manipulation.

The result is that, since the end of last year, bitcoin has been massively outperformed by the euro, despite the fact that Europe’s central bank has been printing money that whole time; badly outperformed by the Turkish lira, despite the fact that the country’s central bank has been forced to keep interest rates inappropriately low by the regime; and has only modestly outperformed the Venezuelan bolivar, despite the fact that Venezuela’s central bank has been irresponsible on the kind of world-historical level we haven’t seen since Yugoslavia in the 1990s or Zimbabwe in the early 2000s.

Is Bitcoin over?

Cryptocurrency market capitalisation has plummeted to $122.3 billion, down 85 per cent from its peak of nearly $800 billion hit in early January this year.

Mainstream investors have stayed clear of bitcoin, with concerns over scant regulatory oversight compounded by frequent swings in price.

Anthony Pompliano, founder and partner at crypto investment firm Morgan Creek Digital Assets, told CNBC the latest crash probably isn’t over yet, but he remains optimistic about bitcoin.

“Through 2017 all of the buyers were retail — as the price is drawing down you’re starting to see institutional investors come in,” he said.

The sharp price falls are seen by some as an opportunity to get into viable cryptocurrency projects at a discounted price, according to Donald Bullers, North American representative of web3 infrastructure platform Elastos.

“Whether it’s market manipulation accusations, a controversial fork, or short-term speculators deciding not to play the long game, this dip will cull the wheat from the chaff and the most important decentralisation projects will continue to survive,” he said.

What could be driving the crash?

Several factors caused the latest dramatic dip, analysts said, including increased scrutiny from US authorities.

They said the US Securities and Exchange Commission (SEC) was partly to blame for the recent sell-off, with the delay in its approval of new bitcoin instruments, as well as for its investigations of initial coin offerings and crypto exchanges.

A delayed launch of the widely-anticipated bitcoin futures by Bakkt, Intercontinental Exchange’s crypto platform to January 2019 did not help matters either, according to Aditya Das, analyst at Brave New Coin, a crypto asset market data company.

“These factors coupled with lukewarm network fundamentals and reports of falling adoption of crypto as a tool for services such as payments, have led to strong selling pressure against a lack of buying resistance, to a point of apparent capitulation,” he said.

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