Bitcoin goes crazy
Just on April 14, Bitcoin set a record when reaching 65,000 USD. After that, the price of this digital currency did not fluctuate too much until the bloodbath on May 19. At 9 a.m. New York time, Bitcoin was priced at $30,016 per coin, down 54% in five weeks.
In the next 4 hours, it increased 36% and hit $40,000. As of 4:51 am on May 21, Bitcoin is priced at 39,505 USD/coin.
Bitcoin has always been in the middle of a war. There is a lot of praise surrounding this digital currency and much more to the blockchain technology that created it. While very inspiring to cultists, it is difficult to analyze as an ordinary asset.
Cryptocurrencies are influential. During the trading session on May 19, the S&P 500 was sold off sharply before opening because investors noticed the bloodbath of the cryptocurrency market. Then again, the S&P 500 struggled all day to bounce off its woeful drop after Bitcoin rallied spectacularly.
Throughout April, the S&P 500 traded in tandem with Bitcoin. However, this seems to have a lot to do with investor emotions, especially inspiration from Elon Musk, the world’s second-richest billionaire. Still, even if we think Elon Musk is exaggerating, nothing explains the May 19 sell-off.
When the Bitcoin price recovered, people searched for the cause of the bloodbath. However, explaining the exact cause of Bitcoin’s rise and fall, the desire to predict its movements, or have a look into the future remains utopian.
Curse of IPO
Throughout history, initial public offerings (IPOs) have always taken place when confidence is at its highest. When a business owner thinks all conditions are ripe, they go public. Coinbase Global Inc., the largest cryptocurrency exchange, has also officially become a listed business. At that time, all the factors favorable for Coinbase to become a public company.
However, IPOs always have “curses” and the fact that many businesses struggle to get back to the top when IPO makes people believe it. In the spring of 2011, mining giant Glencore Plc went public. At that time, the Bloomberg Industrial Metals Index was at a record high. Since that day, the price of metals and Glencore stock has yet to recapture its IPO day highs.
Another example is the Blackstone Group, which is most credited with developing the concept of private equity. In 2007, Blackstone went public on the eve of the Global Financial Crisis. Whoever bought the stock at the time had to wait until 2013 to “break-even”. 6 years is the time that Blackstone shareholders have to wait.
Returning to Bitcoin, Elon Musk’s announcement that he will stop accepting Tesla car purchases with Bitcoin for environmental reasons, which he is certainly aware of when praising, has caused this digital currency to plummet. Bitcoin price is still very low from the peak and there is a reason for investors to continue to monitor Coinbase to know if the “IPO prayer” is right or wrong in this case.
Ready for regulations
Coinbase’s offering may be seen by some as an “indicator” of a peak, but it is not enough to explain the May 19 crash. Within minutes, Bitcoin lost thousands of dollars in value. One of the “bad news” that came just before this sell-off was the Chinese central bank’s reiteration of the cryptocurrency ban they introduced earlier.
Meanwhile, supporters are excited that Bitcoin can replace traditional currencies. Like gold, Bitcoin is expected to hold its value and be unaffected by governments. However, no government will accept their currency being harmed by a currency that is not regulated by anyone.
Not only China, the US, and many other countries are also looking at cryptocurrency regulations. It’s not a declaration of war, but at the moment, investors are becoming more sensitive and any sign that cryptocurrencies are in danger of being regulated could lead to a chain reaction.
Ghosts in the machines
It is said that the more people use it, the more valuable the cryptocurrency becomes. However, this does not always seem to be the case. For now, Bitcoin’s system is still limited in capacity, and as more people transact, the cost of making sure everything stays under control increases.
Meanwhile, Bitcoin mining is also increasingly difficult and energy-consuming. Now, only high-end machines can mine coins, a task that before, only a personal computer could easily solve.
Has the Bitcoin bubble burst?
This is an unanswered question. Bitcoin has experienced 3 old bubble bursts in its short history. Each time, it loses 80% of its value and respawns after a few years.
Meanwhile, Bitcoin fluctuated heavily on May 19 but recovered back to nearly $40,000, double the peak of 2017. That proves it is still too early to say that the Bitcoin bubble has burst. Bitcoin will continue to have value if there are still investors who believe in it. At present, there are still many people who keep believing Bitcoin is valuable than those who think otherwise.