Has Bitcoin Reached Its Peak?

 

Every long-term investor of Bitcoin knows the stomach-wrenching feeling that hits when Bitcoin’s price plummets; when Bitcoin crashes, it crashes hard. Bitcoin’s most recent crash took place between mid-December 2017 and early February 2018 when the price of the cryptocurrency fell from nearly $20,000 to around $6,000 in just a few weeks.

With the latest correction resulting in Bitcoin’s price dropping 70%, it is understandable for casual observers and inexperienced investors to start wondering if Bitcoin reached its peak value in late 2017. It isn’t unreasonable to question whether or not Bitcoin’s time is over.

Huge drops in cryptocurrency market values are referred to by many as “price corrections.” They are often looked at as healthy reactions to overbought or oversold conditions created by irrational hype and waves of uneducated investors. Regardless of how healthy corrections may seem to some, they cause many people to lose all confidence and wonder if Bitcoin can go to zero.

One of the most logical ways to tackle questions about Bitcoin’s future is to look at its past.
 

 

There has been a number of price corrections (both positive and negative) in the 9 years since an unknown developer under the pseudonym Satoshi Nakamoto changed history by releasing the source code for Bitcoin. Let’s review them:

(NOTE: It’s impossible to say with full certainty why a cryptocurrency’s price rises or falls because there are so many factors that influence investors to buy and sell. In the following bullets, we’ll detail Bitcoin’s major price fluctuations and give hindsight’s best explanations for them.)

• In July 2010, slashdot.org featured an article about Bitcoin. As a result of the gained popularity, BTC’s price jumped 1000% from $0.008 to $0.08
• On June 1st, 2011 a post discussing the use of Bitcoin on the site “Silk Road” appeared in the popular blog, Gawker. The price of BTC rose from $9.57 to $30 in a week.

• On June 19th, 2011, just 11 days after the $30 peak, Bitcoin experienced a correction in price to $17.50 before the popular exchange, Mt. Gox, was hacked. Bitcoin’s price fell to $6.50 by August 8th and the continued downtrend brought it to $2.20 in November.
• In December 2011, an episode of the show “The Good Wife” aired named “Bitcoin for Dummies.” The hype around Bitcoin built up again, and by early January, 2012, BTC’s price was above $7.
• On February 11th, 2012, the online payment service, Paxum, dropped support for Bitcoin. Shortly after, the exchange named TradeHill started selling all of its Bitcoin. By February 16th, Bitcoin’s price was down to $4.20.
• In the period between June and August of 2012, the price steadily grew from around $5 to $13.50.
• In April 2013, the Republic of Cyprus announced all bank accounts with over $100,000 would incur heavy taxes later in the year. Seeking to avoid these taxes, many individuals bought huge amounts of Bitcoin, which contributed to a spike in price from $90 to $230 on August 9th. 7 days later, on August 16, BTC is down to $68.
• In November 2013, China announced that citizens were free to buy and sell Bitcoin. The price rally that followed culminated on December 6th when Bitcoin’s price hit $1147.
• On December 5th, 2013, China forbid financial institutions in the country from using Bitcoin. Bitcoin’s price went as low as $520 on December 18th.
• The Chinese ban on banks using Bitcoin and the closing of Mt. Gox were the main events of 2013. During 2013, Bitcoin’s price slowly fell and on December 31st of 2014, it was $313.
• On January 4th, 2015 the popular exchange, Bitstamp, was hacked and 18,866 BTC were stolen. By January 14th, Bitcoin’s price was down to $177.

• In June 2016, the price of Bitcoin rose from $440 to $760. Correction followed with BTC’s price going down to $552 on August 2nd, 2016.
• In 2017, BTC steadily increased. With the hard forks of Bitcoin Cash and Bitcoin Gold adding momentum, the news that financial market CME planned to launch Bitcoin futures and increasing media coverage, large numbers of new investors came into the market. On December 16th the price of one Bitcoin went above $19,000.
• With rumors and speculation about South Korea and China banning usage of cryptocurrencies, Bitcoin entered its next correction; Bitcoin’s price crashed all the way down to $6,000 in February of 2018.

With an objective perspective and access to historical events, it’s easy to see that huge price jumps and dramatic falls are Bitcoin’s usual pattern. Soon after it reaches a new peak, a correction is always looming on the horizon.

But how can anyone be sure there will be a next peak for Bitcoin? Is it possible that Bitcoin can’t go any higher than $20,000?
 

Although Bitcoin was designed to function both as a medium of exchange and a store of value, most people that currently purchase BTC do so hoping to earn profits from the appreciation of its market value. Today, it’s accurate to say that most people see Bitcoin primarily as an investment and secondarily as a store of value.

The future of Bitcoin is very uncertain; while some believe the cryptocurrency doesn’t have intrinsic value, many others are betting that its price still has plenty of room to grow. In this way, Bitcoin can be compared to precious metals and stocks. There is no real limit to the price Bitcoin can reach, because its price is dictated by the value people store in it.

Market cap (short for market capitalization) tells us how much it would cost to buy every unit of a given currency or asset at its current market price. Bitcoin is often compared to gold due to its use as a store of value and investment. When we compare Bitcoin’s current market cap of about $150 billion to gold’s market cap of $7.8 trillion, it’s clear that Bitcoin has plenty of room to grow with wider adoption and confidence.

To accurately gauge whether or not Bitcoin’s price has reached its peak, it’s helpful to consider how Bitcoin reached its peak in the first place. While Bitcoin does, indeed, function as a medium of exchange and a store of value, its price shot up wildly mostly from speculation from investors. These individuals created an “overbought” scenario for Bitcoin out of FOMO - fear of missing out.

The reality is that nobody knows for certain whether or not Bitcoin has reached its peak. The best we can do is use the information available to us to make educated assumptions about the most likely trajectory Bitcoin’s price will take

For Bitcoin to reach a new peak, the market will have to regain confidence in Bitcoin as a whole. Increased adoption and usage will help greatly.
 

If you’re seriously worried that the price of BTC will drop to 0 without notice, you should relax. You can rest assured that it won’t happen anytime soon. There are too many individuals that own Bitcoin for it to become entirely worthless. The number of Bitcoin owners worldwide is estimated to be around 20 million. For the price of Bitcoin to reach 0, everyone would have to suddenly sell their BTC and there would need to be nobody interested in buying Bitcoin.

Bitcoin has had a lot of dramatic price crashes during its 9 year lifespan. The largest drop in terms of percentage occurred in 2011, when Bitcoin’s price slid from $30 to $2.20 - a 95% price correction. Still, Bitcoin never reached 0.
 

Recently there has been a lot of fear and uncertainty surrounding countries and financial institutions planning to introduce regulations and even bans on cryptocurrencies. Some people fear that total bans of cryptocurrencies from powerful governments could cause all cryptos - including Bitcoin - to become completely worthless.

However, it is important to note that the decentralized nature of Bitcoin makes it impossible for individual countries to stop their citizens from using it. They can go as far as making trading Bitcoin illegal all over the world, but there will always be people willing to buy and sell Bitcoin, even if it is illegal.
 

One possible (although highly unlikely) scenario that could bring Bitcoin’s price to 0 is some sort of global electricity or internet outages that last a long period of time. Without the infrastructure needed for transactions to take place, Bitcoin could lose all its value. Without digital resources to use Bitcoin as a medium of exchange or store of value, it would be practically useless. But in such a bleak situation, we would have much bigger problems than Bitcoin’s price.

There is one upcoming technology that could prove to be so disruptive for Bitcoin that it could actually make the cryptocurrency unusable. The technology is called quantum computing.

Researchers in the field of quantum computing suggest that in just 10 years, quantum computers will be powerful enough to decode the private key of any Bitcoin account. This would mean that a hacker with quantum computing resources could steal anyone’s BTC in an instant. Quantum computing is still a long way off, but it does represent a real threat to Bitcoin’s value.

In between the monstrous highs and the devastating lows that mark Bitcoin’s price history are the periods in which investors ask the type of questions we’ve posed in this article. Has Bitcoin reached its peak? Can its price fall to zero? Anyone claiming to have a guaranteed answer to these types of questions is lying. It’s the uncertainty of the market situation that forces Bitcoin’s price to continue fluctuating.

Uncertainty is uncomfortable, but it can also be extremely profitable. As the market continues to try and reach equilibrium, investors compete to accurately guess prices. In such times, especially when it comes to cryptocurrency, information is extremely valuable.