The Bitcoin Bust And Its Ripple Effects

It has not been a great week for the price of bitcoin, or really any cryptocurrency for that matter. The price of bitcoin has fallen and stayed below $6,000 for the last four days and no one’s predicting a rally anytime soon.

The fall comes after a long and uncharacteristically uneventful lateral motion in the bitcoin market where it seemed $6,000 was the stable floor price of bitcoin. After peaking near $20,000 a few days before Christmas last year, the price of bitcoin fell sharply through the first half of 2018 before hitting that $6,000 floor in June. Some had begun to speculate that bitcoin — and cryptocurrency more broadly — was emerging from its speculation-driven period and settling into greater stability.

Then the pattern broke last Wednesday (November 14) when the price of bitcoin dropped 10 percent below $6,000 and stayed there, and the narrative is shifting. Bitcoin is down, and though the reasons for that are up for debate, there seems to be an emerging consensus that bitcoin’s troubles are going to get worse before they get better — which will be trouble for bitcoin miners, investors and enthusiasts, not to mention a host of crypto-connected enterprises. But it will also have ripple effects that will hit downstream — in some perhaps unexpected places.

Don’t say we didn’t warn you.

Why Bitcoin Busted

As with most things bitcoin and cryptocurrency, there is no single or straightforward explanation for the what’s and whys of the pricing. But there were certainly some drivers that sent the market into the tailspin in which it currently finds itself.

Last Thursday Bitcoin Cash — the fourth-largest digital currency being exchanged — hard-forked into two separate coins. That by itself isn’t much of a news event, Marcus Swanepoel, co-founder and CEO of Luno, a cryptocurrency trading wallet, told NPR.

“The Bitcoin Cash blockchain has been undergoing scheduled hard forks every six months to upgrade and improve the protocol. In most cases, these hard forks are uncontested with the whole community supporting them,” Swanepoel said. “In this case, however, consensus couldn’t be reached with two factions emerging, and proposing different solutions for the upgrade.”

The disagreement comes down to a clash of the crypto-titans between Roger Ver and Craig Wright. Ver supports the current incarnation of Bitcoin Cash; Wright the new fork, known as Bitcoin SV (Satoshi’s Vision). The two sides are vowing to be in the fight for the long haul and have been exchanging insults.

The fight will be settled by the miners — and where they invest their energy and processing power. Until that becomes clear, there is a lot of uncertainty among investors, resulting in diminished trading.

But that issue, many note, is not sufficiently large or well-enough understood to suddenly jolt the price of bitcoin down. The bigger issue, according to some, is that potential buyers are simply losing interest in bitcoin.

“The speed with which cryptos crashed Wednesday indicate that there is very little fresh money, buying interest in the market and that stops were limited in size,” said Nick Cawley, markets analyst at Daily FX.

And bitcoin may still have quite a bit of falling to do, Rob Sluymer, technical analyst at Fundstrat Global Advisors, said in a research note. Bitcoin’s quick price drop this week, he noted, means that the next market test the currency is likely to face will be the $5,000 mark.

And for the more pessimistic analysts, that’s just going to be the start. On the whole, they are predicting bitcoin will likely to continue to fall until sometime during Q2 2019. How low can bitcoin go? In their estimate, $1,500 might be the rebuilding point it will be starting from in 2019.

The Ripple Effects

That 2018 will likely turn out to be a year that bitcoin will have been a bad bet — pretty much no matter when one bought — seems increasingly likely. That will of course be bad news for any number of those directly connected to the industry, including miners, traders, investors and crypto-backed lenders.

But the fall of crypto — with perhaps a longer slump to follow — may turn out to be bad news in some places that may not immediately come to mind.

Silicon Valley chipmaker Nvidia stock dropped 17 percent last Thursday (November 15) following bitcoin’s big bust, following a weaker than expected Q3 earnings report.

Nvidia’s best-known business is in building hardware for video game consoles, and in recent years it has done strong business with selling equipment for digital currency mining. As the price of bitcoin has plummeted in 2018, so too has Nvidia’ revenue.

“The crypto hangover lasted longer than we expected,” Nvidia CEO Jensen Huang said on a conference call with investors Thursday.

And with an eye toward the bear market staying around, the firm lowered its expectations for the holiday season to $2.7 billion, far shy of analyst predictions of $3.4 billion. Nvidia wasn’t alone among chipmakers suffering: rival AMD also reported lower than expected earnings, which it also blamed on the weak crypto market. AMD’s stock, however, took a less dramatic hit of 5 percent.

And Nvidia’s problems are rapidly becoming Nintendo’s — Nvidia is the video game company’s chipmaker and signs that Nintendo might be buying fewer chips leads investors to wonder if Nintendo consoles are also not selling according to plan. That meant as Nvidia’s stock price dropped Thursday, Nintendo’s followed, falling 10 percent.

So now what?

It should be noted that while there are an awful lot of negative predictions floating around, there are also those who believe the current action is more of a blip than a sign of ominous declines to come. Some still say a late 2018 price rally is possible.

Longterm investors also note that the fortunes of bitcoin — and cryptocurrencies — change frequently and suddenly enough that they are not at this point tempted to sell.

“The simple fact is that I am not selling bitcoin in my portfolio, in fact, I am not even interested in this day to day market action,” wrote Naeem Aslam, chief market analyst at Think Markets U.K. “So the recent sell-off hasn’t changed my view about the technology or the potential it has. Wait for the currency or the debt crisis and the day it knocks on the door, guess who is going to answer the door? Bitcoin.”

It remains to see how much of the world will share his optimism when it looks like gravity has caught up with bitcoin lately — with many things orbiting in its wake.