What goes up, must come down—that’s been the story of bitcoin over the past year. Since peaking at more than $19,500 last December, it’s been a one-way trip lower for bitcoin prices. The cryptocurrency recently fell close to $3,100, a whopping 84% below its all-time highs—with no end in sight to the bloodbath.
What’s going on? And how low can prices go? We talked to four experts to get their take on where bitcoin is headed from here and whether a bitcoin ETF is still a possibility.
Why are bitcoin prices falling?
Vinny Lingham, CEO, CivicKey: Simple question, but the answer is exceedingly complex. There are a number of converging factors causing the decline, including miner margin pressure and high volatility scaring retail and institutional investors and reducing new money coming into the ecosystem. Also, there are a number of crypto companies that are not generating revenue or are not profitable and are holding bitcoin and ether that they need to sell for fiat, to pay the bills.
Spencer Bogart, Partner, Blockchain Capital: We're just seeing the other side of a massive bull market. Early-stage technology is always volatile—usually we don't see it because private companies are only priced periodically, but crypto trades 24/7/365, so we see more of the volatility. Aside from that though, I think concern about the viability of the ICO [initial coin offering] market—particularly with the recent regulatory overhang—has also been dragging down the whole market.
Gary Shilling, Economist: Bitcoin was a huge bubble, and then you ran out of buyers. There is no legitimate use of the thing; the thought that bitcoin would replace currencies and take over the world is just ridiculous. It has none of the characteristics of a currency—it’s not a good store of value, medium of exchange, or standard of account.
Matt Hougan, Global Head Of Research, Bitwise: The primary cause of the recent market pullback was the contentious hard fork of the bitcoin cash blockchain that occurred on Nov. 15. Other drivers of the pullback were two enforcement actions targeting the ICO market by the U.S. Securities and Exchange Commission; the breaching of significant technical levels of support for bitcoin and other cryptoassets; and tax-loss harvesting activity by investors.
How low do you think bitcoin can go, and where would you be a buyer?
Lingham: Historically, after almost every bitcoin bubble, the retrace has been to around the previous high; in this case, around $1,200. I'm not saying it will get there, necessarily, but it's possible given previous bubble/bust cycles.
Bogart: I have no idea where prices will bottom out, but I think two years from now, bitcoin will be much higher than it is today.
Shilling: I think there is more downside to come. If the thing went to zero, it wouldn’t surprise me, but I don’t know how you can put a price target on it. There’s no legitimate use of the thing, so consequently, the pressure is on the downside.
Hougan: We expect to see both continued SEC enforcement actions against ICOs and continued tax-loss harvesting. On the flip side, there are a number of significant near-term tail winds that could buoy prices and counterbalance these head winds, such as the planned launch of the Intercontinental Exchange’s Bakkt bitcoin futures exchange in January, the pending launch of Fidelity’s digital asset service, the continued entry of institutional investors into the space, and the emergence of value buyers in the crypto space (something we’ve experienced in our own fund recently).
As we look toward the end of the year and early 2019, the battle between these drivers will (at least in part) determine the direction crypto prices go from here.
Has the prospect for a bitcoin ETF changed recently? What do you peg the odds at over the foreseeable future?
Lingham: I've always placed the odds as very low ... nothing has changed. I don't believe it's ready for prime time in the U.S. until volatility is reduced and the DOJ investigation into price manipulation has been completed. I believe the SEC has given similar guidance.
Bogart: Recent comments from [SEC Chair] Jay Clayton at the Consensus Invest conference suggested the SEC won't be approving a bitcoin ETF until better market surveillance is put in place on major bitcoin exchanges.