The price of Bitcoin has taken quite the hit thus far in 2018 – there is no doubt about that. The world’s most popular digital asset started the year close to its all-time high of just short of $20,000. Since then, it has dropped to its current price point of between $6,000 and $7,000. Sure, a lot of you are wondering if the price of Bitcoin will recover soon.
Fundamentals are Getting Better
There is a lot to be happy about in the cryptocurrency space today. The fundamentals of Bitcoin have never been stronger. The recent announcement by the United States’ SEC that digital assets such as Bitcoin and Ethereum were not to be deemed securities in the eyes of the law was one such positive regulatory step.
Additionally, the launch of the CME and CBOE futures contracts at the end of last year gives Bitcoin some solidity. With traditional financial products being created for the digital currency, it’s hard to argue that it’s all going to disappear anytime soon.
Then there are the attempts of some of the leading companies in the space to appeal to an altogether wealthier class of investors than those that fuelled the end-of-2017 bubble. The likes of Coinbase, Blockchain, and Circle are all working towards providing the kind of “white glove” service institutional investors are used to when getting involved in a new market.
Institutions need safeguards, they need insurance, and mostly, they need a way to buy the huge amounts of the asset they’re interested in that won’t shift the market out of their favor. Finally, they need a way to securely store their assets.
Being such a new and markedly different asset, Bitcoin has thus far experienced its monumental gains without such tools for institutions. As more companies begin to offer these massive money managers a service they’re more accustomed to, it’s only a matter of time before they start buying by the billions.
Technology also Improving
On top of the improving investor landscape, the Bitcoin asset itself is evolving. The Bitcoin you buy today is fundamentally different from the Bitcoin you would have bought twelve months ago. Firstly, the Bitcoin network has been improved to allow it to process more transactions per second.
The SegWit upgrade happened last August. Since then, the value of the asset should have increased. Should it have increased all the way up to $20,000? Possibly not yet. However, since its successful launch, SegWit has been proving itself a success. This opens the door for more potential upgrades.
One such improvement to the Bitcoin network is the Lightning Network. The idea here is to free up the Bitcoin blockchain by allowing those that make frequent micropayments to each other to set up a payment channel between the two of them.
This can be loaded with as much or as little Bitcoin as is needed, and transactions will bounce back and forth between the two parties as often as they wish them to. Only when one party decides to close the channel will the blockchain be updated with the new information.
This would further reduce the number of transactions being added to the blockchain, thus making Bitcoin even more useful to a greater number of people. Obviously, following a successful launch of the Lightning Network, the value of Bitcoin should increase again.
Why did Bitcoin Drop So Much?
So, there’s obviously a lot to be optimistic about! However, to understand a potential recovery in Bitcoin’s price, it’s important to understand why the asset dropped so much in the first place. For that, we need to take a trip back in time to the second half of 2017.
There was mass exuberance over the launch of Bitcoin’s first proper scaling upgrade in the summer of last year. SegWit drove a huge wave of interest in the asset. It had already been steadily rising as the scaling debate seemed to be coming to an end. However, with the successful launch of SegWit and all those that opposed it leaving the Bitcoin core community to follow the forked Bitcoin Cash, the improvement in fundamental value sent the price upwards.
Of course, the press and media then drove a speculative bubble. The more the price went up, the more news outlets wanted to report on it.
The more they reported on it, the more people wanted to buy into the moon shot. Ultimately, this ferocious speculation reached a full-blown mania in December of last year. A lot of this new money was coming from those who had only heard of Bitcoin that year.
A strong sense of “fear of missing out” drove many inexperienced investors to buy into something that they didn’t properly understand in a market that was clearly driven by nothing but wild speculation at that point. At the first sign of a slight market correction, much of the “dumb money” that entered in the latter part of Q4 2017 left the market at a slight loss. This drove more inexperienced investors to also want out of Bitcoin. As their positions started to look in jeopardy, they too sold. This created the snowball effect that caused the large crash of January 2018.
Some Final Thoughts
It’s encouraging that we haven’t fallen all the way back to the pre-SegWit price levels. There is clearly fundamental support for Bitcoin and people still want to store value in the asset. After weathering such a colossal drop, this support base must be considered as a pretty solid one. Still, when the price will go upwards again, no one can really say. It will take a big positive news event to drive the next wave of speculation, and this could come at any moment.