It's been a breakout year for Bitcoin. In 2020 a wave of interest from mainstream investors and institutions helped push the price of the virtual currency from $7,200 in January to above $29,000 on December 31 (and then on past $32,700 by early January 2021). But the innovative digital asset, maintained by a decentralized swarm of so-called miners, has a long history of volatility. Most observers expect some retrenchment of that rally sooner or later.
For insight into why (or maybe when) a slump is likely, it’s worth looking back at Bitcoin’s many "bubble" periods: stretches when the price increased dramatically in a short amount of time, then fell, in most cases, even more sharply. "Bubble," of course, has negative connotations, implying popular delusions and the madness of crowds.
The huge momentum in Bitcoin is eerily reminiscent of what we witnessed almost exactly three years ago. Back in 2017, a single coin rose in value from around $900 at the start of the year to just short of $20,000 by mid-December. Holders were understandably euphoric. “It’s going to the moon!“, they cried. Except it didn’t. Quite the opposite, in fact.
From the beginning of 2018, everything started to unravel. Bitcoin adoption in everyday life was practically non-existent. Accounts were regularly raided by hackers. And with no one left to buy, there was only one direction its value would go.
And, my word, did it fall. Almost exactly one year after its price high, Bitcoin had sunk to just over $3,000. Personally, I can see history repeating itself.
Of course, Bitcoin bulls would point to the fact that it’s ‘different’ this time. The 2017 bubble was the product of unsophisticated traders not knowing what they were doing, they’d argue. The 2020 rise, coupled with Paypal’s decision to allow those account holders to purchase cryptocurrency, is proof Bitcoin is now mainstream. What’s more, the cryptocurrency could replace gold as the best store of value in troubled times. But will it really?
Where’s the evidence?
As far as gold’s concerned, the shiny stuff has a history of holding its value in times of trouble. Bitcoin simply doesn’t. It’s only been around since 2009.
Call me an old stick-in-the-mud, but I’d prefer to back something with a track record. Past performance is not a guide to the future but, with crystal balls out of stock, it’s the best thing we’ve got. Factor in that the Bitcoin price is based purely on what someone else will pay for it, and you have a recipe for alarming volatility.
Bitcoin is indeed riding high. I could be proved utterly, hopelessly, completely wrong in my prediction it will crash next year. Perhaps things are different this time.
Even so, I’ll leave you with this. If we assume that a crash does happen, where will those who’ve made a mint turn to next?
For insight into why (or maybe when) a slump is likely, it’s worth looking back at Bitcoin’s many "bubble" periods: stretches when the price increased dramatically in a short amount of time, then fell, in most cases, even more sharply. "Bubble," of course, has negative connotations, implying popular delusions and the madness of crowds.
The huge momentum in Bitcoin is eerily reminiscent of what we witnessed almost exactly three years ago. Back in 2017, a single coin rose in value from around $900 at the start of the year to just short of $20,000 by mid-December. Holders were understandably euphoric. “It’s going to the moon!“, they cried. Except it didn’t. Quite the opposite, in fact.
From the beginning of 2018, everything started to unravel. Bitcoin adoption in everyday life was practically non-existent. Accounts were regularly raided by hackers. And with no one left to buy, there was only one direction its value would go.
And, my word, did it fall. Almost exactly one year after its price high, Bitcoin had sunk to just over $3,000. Personally, I can see history repeating itself.
Of course, Bitcoin bulls would point to the fact that it’s ‘different’ this time. The 2017 bubble was the product of unsophisticated traders not knowing what they were doing, they’d argue. The 2020 rise, coupled with Paypal’s decision to allow those account holders to purchase cryptocurrency, is proof Bitcoin is now mainstream. What’s more, the cryptocurrency could replace gold as the best store of value in troubled times. But will it really?
Where’s the evidence?
As far as gold’s concerned, the shiny stuff has a history of holding its value in times of trouble. Bitcoin simply doesn’t. It’s only been around since 2009.
Call me an old stick-in-the-mud, but I’d prefer to back something with a track record. Past performance is not a guide to the future but, with crystal balls out of stock, it’s the best thing we’ve got. Factor in that the Bitcoin price is based purely on what someone else will pay for it, and you have a recipe for alarming volatility.
Bitcoin is indeed riding high. I could be proved utterly, hopelessly, completely wrong in my prediction it will crash next year. Perhaps things are different this time.
Even so, I’ll leave you with this. If we assume that a crash does happen, where will those who’ve made a mint turn to next?