- Bitcoin is cornered but not dead
- Bitcoin’s experience is reminiscent of black Wednesday of 1992
- Large industry actors could hold the answer to current crisis
Bitcoin, like all cryptocurrencies, is in a deep crisis, you can say it’s been cornered, but it’s not dead. Like the dot-com bubble and Black Wednesday of the 1990s, the strong dose of irrational exuberance teaches us a few important lessons.
Hash war acted as a catalyst
The cryptocurrency market has faced an intense sell-off by investors who have been rattled by infighting over a split in Bitcoin’s most visible spin-off, Bitcoin cash and increased talk of regulatory scrutiny. The current pricing marks the lowest level since September 2017, and the over 80 percent decline translates to over $700 billion since the $830 billion peak where their market value reached at the beginning of this year.
Bitcoin may head down to $2,000 or upwards towards $10,000 depending on the forecasting method one may want to apply to estimate the digital currency’s intrinsic value. Bitcoin has broken one price floor after another starting with the $6,000 mark, which the cryptocurrency held for close to three months before it crossed the $5,700 mark and eventually the $5,000 mark, which most experts considered the $5,000 mark the floor for the digital currency.
The price of decentralization
Lionel Laurent, writing in Bloomberg, compares what’s happening to Bitcoin to the way central banks have worked under heavy pressure to defend their currencies when they have been under attack, with the difference being that cryptocurrencies don’t have a central bank to fight for them. Lionel says:
“Like a boxer taking a relentless series of punches, if there are no more resources to withstand the pain, it becomes a knockout.”
What’s happening is reminiscent of the Bank of England’s fight for the Sterling in 1992, leading to the Black Wednesday which occurred in the United Kingdom on 16 September 1992, when John Major’s Conservative government was forced to withdraw the pound sterling from the European Exchange Rate Mechanism (ERM) after it could not keep the pound above its agreed lower limit in the ERM. In 1997, the UK Treasury estimated the cost of Black Wednesday at £3.4 billion.
With Bitcoin, while it doesn’t have a central bank to fight for it, the banding together of a “tight-knit crypto community” will help to protect their investment. Today, the defenders of Bitcoin could be large, centralized actors owning over $10 million in Bitcoin. Raoul Pal, an adviser if the Global Macro Investor, a research publication says:
“If you’re looking for who has central-bank type firepower to take on heavy selling in Bitcoin, look no further than Tether […] tether tokens claim to be backed one-to-one by hard currency like U.S. dollars.”