Just over a year ago, I wrote an article on Bitcoin. At the time, the world was going absolutely crazy over the cryptocurrency and its price was soaring. Everyone was talking about it. Yet to my mind, the whole thing just looked like one huge bubble. As such, I said that I wouldn’t touch $10,000 Bitcoin “with a bargepole.” I also listed the cryptocurrency as an investment bubble to avoid in 2018.
In hindsight, my first article on Bitcoin was a few weeks too early. After reaching $10,000, its price continued to surge all the way to $19,000 by mid-December. Yet a year later, my call looks pretty good. Right now, the cryptocurrency trades for just $3,400, meaning that it has lost around two-thirds of its value since hitting $10,000 last year. In other words, had you ‘invested’ £5,000 when its price was $10,000, your money would now be worth just £1,700.
Is it likely to keep falling? I think there’s a good chance it will. In fact, I wouldn’t be surprised to see it fall all the way back to $1,000. Here’s why.
The thing to understand about bitcoin is that it’s impossible to value. Unlike a stock, it has no cash flows, earnings or dividends, and that means we can’t place an ‘intrinsic’ value on it. The problem with this kind of asset is that if you buy it, your only chance of making a profit is if someone is willing to pay a higher price for it than you paid (the ‘greater fool’ theory).
But who’d want to buy your Bitcoin from you now? We’re talking about a depreciating asset that is trending downward hard and losing value by the day.
In my view, there’s nothing to really prop the price up right now. As such, I think it could fall much further.
Little real-world use
Furthermore, a year after the Bitcoin bubble, the cryptocurrency still has very little real-world use. Could I walk down to my local corner shop and buy a loaf of bread with it? No. Could I jump onto ASOS and buy a new pair of jeans with it? No. It’s not very useful, is it?
Furthermore, its price volatility over the last year has shown that it’s completely unsuitable as a currency. Would you want to be paid, or earn your pension, in a currency that loses 66% of its value in a year? No way.
So now that people are realising that it’s highly unlikely that the world will just start using Bitcoin as a currency, I can see more people offloading the cryptocurrency, resulting in further falls.
Tidal wave of regulation
Lastly, while its trading has been regulated very lightly in the past, this is all about to change. Due to the fact that bitcoin is often used for criminal activities, such as money laundering, the whole cryptocurrency industry looks set to be hit with a tidal wave of regulation in the years ahead, and this could see demand for bitcoin fall further.
So, overall, the outlook for Bitcoin doesn’t look good right now, in my view. The trend is down and there’s nothing to really stop the fall. It might find some support around the $2,500 level but, after that, the next stop could be $1,000.
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