This is one question that is on everyone’s minds at the moment, and I don’t think there’s a definitive answer that can be attributed to why the world’s most valuable cryptocurrency is falling. Crowds of people are dumbfounded by its descent as they are convinced that it is merely just a bump in the road, and bitcoin will certainly rise again and become even stronger. When we look at what Bitcoin achieved in the winter of 2017 in such a short space of time, it is quite astonishing at what we are looking at here. In September 2017 the price of bitcoin sat at roughly $3000 and 3 months later in December, that price had exploded all the way to roughly $19,000, and this move has resulted in a number of millionaires and even a few billionaires.
However, as we sit back and continue to watch bitcoin drop like a sack of spuds, there are few analysts who are claiming that bitcoin was a bubble all along and now we are seeing the effects of the bubble bursting. A bubble that occurs in an economy can be a terrible thing, especially when it pops because it can often bleed into other markets and effect them too. Over the space of the past 20-30 years we have experienced quite a few bubbles, some bigger than others but they are bubbles nonetheless. Take the dot-com bubble in early 2000’s and the housing crisis of 2008, both of which saw prices rise exponentially and then all of a sudden everything seemed to crash, and this of course caused some serious damage to the economy. An over-valuation of an asset that has been artificially propped up that results in a sudden downward correction is what constitutes a bubble, and with speculation that bitcoin was artificially propped up during the winter, is of course evidence that we could be experiencing the bitcoin bubble bursting.
There is also the possibility that there are those who have simply got bored of the cryptocurrency are moving on, back to fiat currency. Since a widespread adoption helps the growth of an asset, and bitcoin is no different it has certainly opened the eyes of many businesses to start accepting cryptocurrencies, but we already have an easier option to pay for goods and services, so why would anyone want to go through the hassle of having to set up a wallet, to then have to exchange fiat currency to cryptocurrency. It just doesn’t make sense.
We also have the continual pushback from governments and institutions that are fighting against the adoption of cryptocurrencies for professional uses, exclaiming that they have no use. One such argument from central banks has stated that if large corporations were to settle enormous bitcoin transactions then it could actually “break the internet” due to the sheer power it would need to settle these transactions.
Even though cryptocurrencies like bitcoin have brought with it some revolutionary technology like blockchain, I think the world of cryptocurrencies like bitcoin are slowly being eroded away as people have come down from the hype and are realizing that there actually might not be any use for them at all.