Bitcoin

The Beginning Of The End For Bitcoin?

bitcoin

Bitcoin has been riding a bit of a rollercoaster in the past few weeks since hitting an all-time high of more than $4,800 per digital coin on Aug. 31.

To continue the rollercoaster analogy, the cryptocurrency’s value has been on a steep climb all year, and it stands to reason that bitcoin’s skyrocketing value must eventually slow and reverse. What goes up must come down, as they say, and many are predicting that bitcoin’s time has come (or at least they’re hoping that’s the case).

Diehards, however, are still crying “hodl” — the cryptocurrency community’s rallying cry, inspired by an enthusiastic misspelling of “hold” in a 2013 Reddit thread. Hodlers resist the temptation to sell off their digital assets just because the price is high and may potentially be in a bubble.

Hodlers have hodled through a hard fork in the blockchain, which spawned Bitcoin Cash on Aug. 1, and — despite the potential for another split in November — show they are not averse to uncertainty.

A hard fork is when the blockchain splits into two separate chains due to a radical change in protocol — often introduced to address a cybersecurity vulnerability. One branch follows the new protocol, while the other continues to follow the old. Transactions following the old rules will not be considered valid in the new chain, generally prompting those who follow the old chain to upgrade.

If that uncertainty isn’t loosening hodlers’ hodl, it seems unlikely that bad press, bitcoin ICO bans and regulation in China, derision from JPMorgan CEO Jamie Dimon or prophecies of a bursting bubble will do it either. But for everyone else — the average investors and the prudent types — all that upheaval has been enough to shake confidence and send bitcoin stock prices tumbling more than 6.5 percent this week.

Bad Press

This week, U.K.’s watchdog, the Financial Conduct Authority (FCA), cautioned investors against ICOs (initial coin offerings, a cryptocurrency fundraising method) due to their high-risk, speculative nature. It noted that ICO projects are often in early stages of development, exist in an unregulated space, offer no investor protection and suffer from price volatility, fraud potential and inadequate documentation.

FCA advised: “You should only invest in an ICO project if you are an experienced investor, confident in the quality of the ICO project itself (e.g. business plan, technology, people involved) and prepared to lose your entire stake.”

On the same day, JPMorgan CEO Jamie Dimon called cryptocurrency a “fraud” and a bubble on the brink of bursting — just like was said of railroad bonds, electric utility stocks, cars, radios, electronics, TVs, computers and real estate before it. Dimon said he would fire any JPMorgan employee found to be speculating in that market. Too harsh? That’s up for debate, but it certainly scared away some investors and contributed to what may indeed be the beginning of the bitcoin stock crash.

Finally, it can’t help bitcoin’s case that news sources are now reporting that North Korea is stepping up cybercrime efforts to secure digital assets like bitcoin, allegedly hacking cryptocurrency exchanges in South Korea (and possibly fueling concerns by China, which has now introduced regulations against bitcoin).

Bloomberg notes that the lack of state control and the enigmatic nature of cryptocurrency make it an ideal funding source for North Korea’s threatened nuclear attack against the U.S.

Banned in China

Last week, Chinese regulators went one step further and banned ICOs.

Business Insider reported that many firms had been using the fundraising method to generate millions of dollars easily without ever actually offering a product. The way this works is that a company creates its own digital currency that can be spent within its ecosystem. Investor contributions can then be treated as cash to help get the venture off the ground.

Like the FCA said: highly speculative.

Still, digital currency proponents didn’t see the ICO ban as a bad thing. Sebastian Quinn-Watson of Blockchain Global, a bitcoin exchange operator, told Business Insider that the news out of China was an “absolute win” for the cryptocurrency community, because it will weed out illegitimate ICOs.

But that was before rumors of a total ban on domestic virtual currency exchanges drove BTC China, the country’s largest bitcoin exchange, to announce it was shutting down. Bloomberg noted that the move comes not only on the tail of the ICO ban, but also five straight days of sliding stocks — bitcoin’s longest losing streak in more than a year.

Do the Hodlers Have It?

Bitcoin believers will not have their optimism crushed.

One major Chinese news outlet said that banning the cryptocurrency was unrealistic and unfeasible due to its peer-to-peer (p2p) trading characteristics. What would be feasible and realistic, the article claims, would be to better supervise the trading platforms.

Others continue charging full steam ahead. One Swiss municipality has decided to let its residents pay their taxes in bitcoin after successfully piloting a program in which it accepted bitcoin payments for municipal services. Even they are exercising caution, however, capping bitcoin payments at $261 USD (at least for now).

Ultimately, as Forbes concluded, it may be impossible to identify whether bitcoin is a bubble until after it bursts.

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