This week’s Bitcoin Tracker is like a game of good news, bad news. To keep us in good spirits heading into the weekend, let's start with the bad and end with the good.
They say that nothing can last forever. Whoever “they” are, they're not likely to be part of the crowd who were hoping that bitcoin’s $1,000 break would last longer than it did.
Bitcoin was riding high until yesterday (Jan. 5) — hitting new heights not seen in years. At 8:00 a.m. UTC on Jan. 5, 2017, bitcoin was worth $1,153.02. But by just after 1 p.m. UTC, the price of bitcoin had dropped down 23 percent to $885.41. At the time of writing, bitcoin’s price has recovered a bit, hovering around $955 as if unsure what to do next.
Turns out the uncharacteristic stability seen in the past few weeks was, well, uncharacteristic. Industry experts have been quoted as saying that the recent and rapid rally in bitcoin created a “little bubble” that has burst.
Bitcoin isn’t alone in this sudden drop in value. A look at Crypto-Currency Market Capitalizations shows that, roughly in the same frame of time, the top 57 digital currencies all saw their values drop. In fact, at the time of writing, 92 of the 100 cryptocurrencies tracked lost value in the same 24-hour period. Whether this is a strange quirk of the system, a coincidence or part of something larger has yet to be seen.
Though the sudden drop in value is disappointing for bitcoin lovers, long-term prospects are still largely positive. Peter Smith, chief executive of bitcoin wallet Blockchain, was quoted via email as saying: “Once we broke through the nominal all-time high, liquidity dried up — no shorts, no sellers, which means a volatile little bubble formed quickly. We are seeing the effects of that now. It's still fairly thin trading volume, though. I expect the market will find a floor and stabilize somewhere in the $850 to $1,000 range, but we’ll see."
Just a reminder for folks a bit torn up by this news — bitcoin’s price as of now is in the same region it was just a week or so ago when everyone was getting hyped for it to break $1,000. Worldwide trends toward bitcoin adoption and legitimization may have helped the recent price increase.
A bubble is a bubble, and bitcoin is volatile. While the drop was sudden and dramatic, bitcoin is still far more valuable than it has been in years (excluding the past week and a half, of course). But the value drop is not the only bad news for bitcoin this week.
In Colombia, Francisco Reyes Villamizar, head of the Superintendencia de Sociedades, an organization associated with the Colombian Ministry of Commerce, Industry and Tourism, has announced that the use of all digital currencies is now prohibited in Colombia, stressing that the valid currency in the country of 49 million is the peso.
The announcement comes as a reaction to what Villamizar calls “investment clubs,” in which members convince others to join the club and invest with the promise of doubling their money within two months. While it remains unclear how these investment clubs relate to digital currencies, it seems plausible that the clubs were perhaps conducting fraudulent bitcoin schemes of sorts.
It also remains unclear if, and how, Colombia plans to enforce the bitcoin ban. Even in nations where bitcoin has been declared illegal for years, the digital currency still proliferates, like in Indonesia. The Indonesian central bank, Bank Indonesia, declared back in 2014 that bitcoin was not legal tender. Despite this, bitcoin adoption has continued to grow in the Southeast Asian nation of over 260 million.
A report from The Jakarta Post found that the number of bitcoin users in Indonesia has more than tripled since the end of 2015 — from 80,000 to 250,000. Bitcoin sees a daily transaction value of Rp 20 billion ($1.5 million), and KinerjaPay, a prominent eCommerce and digital payment platform in Indonesia, even went so far as to enable bitcoin as a payment method after Bank Indonesia’s announcement.
So, unless Colombia decides to get serious about enforcing bitcoin prohibition, it seems unlikely that bitcoin use will drop off in any meaningful way. More likely, the use of bitcoin and other digital currencies will continue to grow in Colombia and elsewhere.