Has The Bitcoin Bubble Burst?

Long-term cryptocurrency bulls will point out that Bitcoin has experienced numerous crashes since getting its start. Who can forget the Mt. Gox scandal that, at the time, shook Bitcoin supporters to their very cores? Or the numerous other crashes that came as a result of regulatory actions (China) or massive coin thefts.

In case you have been living under a rock, Bitcoin (and practically all of their crypto brother and sisters) has been completely smashed over the past couple of months.

The difference this time around? The mainstream bought into this recent surge, which has meant that the ride back down has proven to be particularly harsh. After all, those who have been in Bitcoin from the beginning and believe in its future are likely not selling due to this volatility - those who jumped in during the latest run up, however, are going to be the first to sell, as they don't have any roots in the technology. Those who bought in at $18,000 because they heard on TV that Bitcoin was going to $1 million/coin are likely already long gone.

The question - will this recent volatility flush out the weak hands before Bitcoin and its siblings take another leg higher?

The biggest issue facing the cryptocurrency world right now is that the recent surge in buying from the mainstream has brought with it a great deal of scrutiny from both government agencies and banks. A number of US and UK banks have announced in recent days that they will no longer allow their customers to use credit cards to buy cryptocurrencies, and other banks are currently in the process of "reviewing their policies", which likely means that they will make the same changes as well.

Cryptocurrencies can continue to thrive even under the watchful eye of the government, though sustained upwards moves become tougher when governments and banks choke off the means to transfer funds to be used to buy cryptocurrencies. This essentially cuts the casual buyer out of transactions, as the average person is likely going to give up once their credit card gets declined. Banks are looking to mitigate their risk, as they are afraid of people making huge crypto purchases and then walking away from the amounts that they owe if their purchases end up going in the wrong direction.

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In terms of explosive price action (1,000% moves in a year), there seems to be little likelihood that Bitcoin will ever turn in the same amount of gains that it has in the past. Given its market capitalization and changing government regulations and banking stances, this seems nearly impossible.

There will likely be some stabilization, however, as the "weak hands" get shaken out (much of this has already happened).

For those who believe in the long-term possibilities of Bitcoin, this is likely not a bad thing, as the coins will start to find themselves back in the hands of those who are with it for the long term.

Filed under: General Knowledge