Are Bitcoin and Other Cryptocurrencies Selling for Cheap?
In December 2017, Bitcoin traded as high as $19,551. Now, the cryptocurrency trades at around $8,200. It went as low as $7,000. With this 58.06% decline from its highs, is Bitcoin worth it? Are cryptocurrencies, in general, selling for cheap?
Before going into any other details, know some simple math; for Bitcoin to get to that high again, the price would have to soar by 138%.
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Mind you, some cryptocurrencies have dropped well over 70% from their highs. So they would need a much bigger appreciation to get back to those highs.
Simply speaking from an arithmetic point of view, that sort of move may be difficult going forward. Why? Because there are too many people involved and they could be sitting on massive losses. So, we could see selling in strength.
Regulations Could Kill Bitcoin and Other Cryptocurrencies
Beyond this, understand that there are a lot of headwinds for Bitcoin and other cryptocurrencies ahead.
One of the biggest things investors need to know is the regulations.
Currently, the regulations around cryptocurrencies are “gray,” to say the very least. It’s still a Wild West kind of scenario. But know this, it’s not because regulators can’t regulate Bitcoin and others, they are just not too keen on it.
We are hearing a lot of negativity toward cryptocurrencies.
For example, just recently, President of the World Bank Jim Yong Kim referred to cryptocurrencies as a Ponzi scheme.
“In terms of using Bitcoin or some of the cryptocurrencies, we are also looking at it, but I’m told the vast majority of cryptocurrencies are basically Ponzi schemes. It’s still not really clear how it’s going to work.” (Source: “Cryptocurrencies Are Like Ponzi Schemes, World Bank Chief Says,” Bloomberg, February 7, 2018.)
This isn’t all.
Mario Draghi, President of the European Central Bank (ECB), dubbed cryptocurrencies as “very risky” digital assets. The ECB is even looking closely if lenders in the eurozone are exposed to it.
We heard a warning from the Bank of International Settlements (BIS) as well. The general manager of BIS said, “Most importantly, the meteoric rise of cryptocurrencies should not make us forget the important role central banks play as stewards of public trust. Private digital tokens masquerading as currencies must not subvert this trust.” (Source: “BIS Chief Sees ‘Strong Case’ for Cryptocurrency Intervention,” Bloomberg, February 6, 2018.)
Bitcoin and Other Cryptocurrencies’ Outlook for 2018
Dear reader, I have said it several times already and will repeat it again: Bitcoin and cryptocurrencies have become speculation haven. This is very dangerous. If we see another move to the upside in 2018, expect the sell-off to be much bigger next time.
Investors need to start looking at the technology that’s behind these cryptocurrencies—the blockchain technology. This technology could revolutionize a lot of things we do.
I fully expect 2018 to be the year when regulators finally go, “We need to do something about this.” In this process, we could be hearing a lot about how these things are taxed and how the companies could raise money. Don’t be shocked if regulations are what kill Bitcoin and other cryptocurrencies.
Obviously, with time, we will know more.
Buyers beware; if you believe they are selling for cheap, it may be wise to not allocate your life savings toward them. A small amount could make a big impact on the portfolio in case there’s upside.
