What goes up, must come down; the laws of physics work that way in markets as well.
After an explosive run that sent bitcoin prices up 14-fold in 2017, the digital currency is coming down nearly as fast in 2018. Bitcoin recently hit a low of $3,500, down a whopping 82% from its all-time high of more than $19,500 last year.
Large price swings are nothing new for the notoriously volatile cryptocurrency, but the latest drawdown is among the biggest in bitcoin’s decade-long existence. It’s on par, for example, with the 2014 bust, which sent prices down 86%, from $1,137 to $160.
The current decline is even approaching the 2011 plunge—regarded as the largest ever—when prices dropped 93%, from almost $30 to $2.
From Boom To Bust …
It would be easy to pin the 2018 crash in bitcoin prices as simply the bursting of a bubble; and, according to crypto skeptics, that explanation is the correct one.
“It was a huge bubble, and then you ran out of buyers,” explained Gary Shilling, economist and market commentator.
“There is no legitimate use of the thing; the thought that bitcoin would replace currencies and take over the world is just ridiculous,” he added. “It has none of the characteristics of a currency—it’s not a good store of value, medium of exchange, or standard of account.”
Shilling, who is short bitcoin futures, doesn’t have a downside target, but expects prices to continue cratering.
Pause In Long-Term Uptrend
Meanwhile, taking the completely opposite view of bitcoin are people like Lou Kerner, partner at CryptoOracle, a blockchain-focused venture capital firm. Bitcoin evangelists like him argue that this year’s correction is simply a pause in the long-term uptrend for bitcoin prices, just like the 2011 and 2014 sell-offs.
Sure, prices may have gotten ahead of themselves last year, precipitating this year’s furious pullback, but previous crashes in bitcoin prices didn’t mark the end of the digital currency, and neither will this one. Eventually, prices will regain their footing and climb to new highs, they say.
"Crypto has been so weak, because [for] most of it, there's no underlying value outside of confidence," Kerner told CNBC. But bitcoin is a different animal, according to Kerner, who believes its total market value—currently around $75 billion—will eventually surpass gold’s $8 trillion market value.
Bitcoin is “the greatest store of value ever created," he said. "It should surpass gold over time. It won't happen overnight."