On 14 Nov 2018, after spending more than three months in a stable bracket around $6,500 – which is like an eternity for this extremely volatile cryptocurrency.
Bitcoin plummeted to $4,500 within a week and it seems it will drop even further.
What are the causes for this, what are the reasons why bitcoin will recover, what are the reasons why bitcoin won’t recover, and which of these is most likely?
Read on and find out if you should HODL, sell or buy.
3 Reasons For Drop
Manipulation
No one knows for sure why did the price plummet, but most people agree that someone is intentionally reducing the price and therefore has a motive for doing so. It is probable that the price is then dropping even further as people sell their own bitcoins out of fear that the price will drop further – and that’s a self-fulfilling prophecy as the effect of their sale is that the price is dropping further.
In any case, it’s almost certain that someone is intentionally reducing the price of bitcoin and keeping it below a certain level. Whenever someone is doing that with the price of an asset, he plans to profit from the price increase that will follow, and at some point will start buying back bitcoin. Rich get richer, poor get poorer.
Holiday shopping
It’s the holiday season, and in recent years we’ve regularly seen people cashing out their crypto assets – not swapping one coin for another but taking cold hard cash – so they can buy gifts and so they can celebrate Christmas properly. It’s no coincidence that the drop happened around the time of the Black Friday sale on 24 November. It makes sense if you own crypto – sell some in order to “make money” by buying discounted items on Black Friday sale.
There is always a huge flow of cash out of crypto around this time of the year, and it is likely to continue all the way until the Chinese New Year, which falls on 5 February 2019.
Fear and uncertainty
There were several bad news for the crypto universe recently, or at least the general public perceived them as bad news. The U.S. Securities and Exchange Commission (SEC) dug deeper into regulating ICOs and exchanges, and the public saw this is a bad sign, although it’s likely a good sign. If SEC remain careful and keep trying to understand crypto instead of stomping down on it, then it’s a step towards letting all those middle-class investors pour the money into crypto, mainly into bitcoin. The struggle continues.
Also, the bad news about Tether price manipulation are making people want to stay away from crypto altogether. But optimists would say it’s good that these things are revealed and shedded off, same as it’s good to catch a criminal and send him to jail – the streets are safer afterwards. But, the general public responds to hype and fear, and these news fall much more into the “fear” category.
6 Reasons for Recovery
Price manipulation
Plain and simple, whoever intentionally affected the bitcoin price now, is doing that to make money later. Unless that entity just wanted out of crypto, which is not very likely as an entity that can affect the price negatively can also affect it positively, and therefore make some more money on it. In any case, if this was intentional price manipulation, the second part of that manipulation is pending, and the only question is when.
New miners introduced
Bitmain, the Chinese producer of bitcoin mining equipment, started taking orders for the newest bitcoin miner, Antminer S15, which is twice as efficient as the mainstay of all bitcoin mining companies, Antiminer S9. Deliveries are starting in December 2018 and the S15 is profitable even with the current bitcoin price, though just barely.
With the new mining equipment it will be cheaper to mine bitcoins as the equipment is more energy efficient, but big mining companies have to make money somehow. They got a lot of influence on the crypto market and they’ll do whatever they can to increase the price. While most of us care about a few thousand dollars or a bit more, these guys care about millions and millions. They won’t buy the new S15s on a prayer, but will only buy them if they know the price will rise. They’re buying S15s.
Halving of the block reward in 2020
While it may seem we have a long way to go until May 2020, it will come sooner than we think and the halving might catch us off guard if we’re not prepared. On the day when requirements are met, the bitcoin mining reward will halve, from 12.5 BTC to 6.25 BTC per block. Today we’re at around 82% of mined bitcoins and only less than 18% remain to be mined, and there are very few scenarios in which this wouldn’t lead to a price rise.
Miners got to get paid for their bitcoins, although the world is less and less reliant on them as there are many bitcoins in circulation, and miners can do little to dictate the price. Last halving came in July 2016 and apparently not much has happened at that moment, as the price was steady at around $650. But in November 2016 the historic price rise began. Many think the halving made it possible.
Bitcoin transactions are fast and cheap
During the huge price rise in 2017, it was obvious that bitcoin transactions are getting more and more expensive and are getting slower. This got ridiculous, and at one point the fee for a transaction was over $30.
That problem has since been resolved, and now when you make a bitcoin transaction you can expect to pay a few cents and the transaction will be confirmed on the blockchain really soon, within an hour or so. This means that bitcoin is finally
Bitcoin is entering mainstream as a currency
No one is sure if bitcoin is a currency or a digital gold, but it seems it’s being used much more as a currency. More and more merchants accept bitcoin these days, and it seems bitcoin is quietly entering mainstream. Up until recently, when a merchant started accepting bitcoin is was news, now it’s no longer news but a perfectly normal thing. Soon people will stop thinking about it and will just accept it as a viable payment method. Maybe it will even become a way to pay for things in land-based stores. How can the value of such a product decline instead of rise?
Finite supply
Don’t think short term. Think long term. There can only ever be 21 million bitcoins, and within a few years the mining of new coins will start being an insignificant percentage of all bitcoins in existence. At that point, when it will no longer be viable to mine new bitcoins, there will be a finite supply of a product everyone wants (because it’s a world currency for instant cheap payments). There are projections of how much a bitcoin should be worth if bitcoin takes over a certain percentage of money in the world, and the projections range between $20,000 to $100,000 or even more than that. Most long-term thinkers expect bitcoin to finally stabilize when all these conditions are met, and to become a permanent thing in the world’s financial ecosystem.
Should You HOLD, buy or sell?
No one knows, and this article can be used simply to think outside the box and come up with a conclusion yourself. The most likely scenario is that bitcoin will rise in price significantly, but it’s unknown when will the rise begin. It might not be this year, it might not be in 2019, and a person might have to be as patient as those early HODLers were.
Selling when the price is dropping is always a bad move, as wise investors know this is actually the time to buy an asset, and not a time to sell in order to protect yourself from further losses.
The right time to buy more bitcoin will depend on what will the rock bottom price be. Perhaps this is already the rock bottom price and the time to buy is now, perhaps the rock bottom is at $3,000 or even $1,000 so anyone who buys now will first have to suffer short-term losses before long-term gains.
No one knows what will happen. But the general trend will likely be bullish, though it may take years before bitcoin returns to its highest-ever price. Or it may happen suddenly. But this is not a crash and bitcoin is not finished.
