Home Cryptocurrency News Bitcoin Here's One Reason Why Bitcoin Is In Freefall

Here's One Reason Why Bitcoin Is In Freefall

23 min read
0
100

<div _ngcontent-c20 innerhtml="

Traders work in a trading pit at the Chicago Board Options Exchange. Trading in bitcoin futures began in December. The most active bitcoin future is struggling to keep up with the spot price. Bitcoin is now around $7,500. The XBT/G8 was priced at $8,390 on Thursday. (AP Photo/Kiichiro Sato)

The market cap of the world’s top cryptocurrencies has fallen from around $620 billion to $379.3 billion in less than two months. Most of it is due to Bitcoin, the market leader. Bitcoin may be in a freefall because demand for the cryptocurrency as a usable form of payment is slipping, if not dying altogether.

At least four companies have given up on Bitcoin transactions.

Stripe said it will stop all Bitcoin transactions by April 23. Microsoft is reportedly no longer accepting it as a means&nbsp;of payment. Steam, a software developer geared toward gamer technologies, stopped accepting Bitcoin in December citing transaction costs.

Transaction speed is another issue. Bitcoin processes under 10 transactions per second. By comparison, Amazon processes hundreds of transactions per second using a good old-fashion credit card.

“The network is currently overloaded due to arbitrage (among Asian Bitcoin traders) and the rush to trade Bitcoin,” says Ruslan Tugushev, CEO of Storiqa, a blockchain company for e-commerce with its own token, STQ. “The blockchain gets overheated like a frying pan when Bitcoin is used for payment purposes too instead of as a digital commodity. I think faster transaction speeds will require higher commissions for (Bitcoin) miners,” he says of the companies and individuals that own the computer equipment used to process Bitcoin transactions.

Gig-economy platform provider Fiverr no longer accepts Bitcoin.

And in an odd twist, the North American Bitcoin Conference stopped accepting Bitcoin payments for tickets due to transaction fees and slow processing times for payment, Business Insider reported on Jan. 10.

“Its utility as a medium of exchange is confronting bigger challenges than expected,” says Vladimir Signorelli, founder of Bretton Woods Research in New Jersey. “These are huge headwinds for Bitcoin.&nbsp; Whenever the Bitcoin universe shrinks, you see the price drop.&nbsp; There is almost a panic about it,” he says. “China regulations and bans couldn’t stop bitcoin, but maybe markets shutting it out as a form of payment will.”

Bitcoin has fallen from its high of $18,979 on December 15, 2017. Last month, investment advisor Savio Tung from Investcorp in New York told investors during a China conference: “On bitcoin, take the money and run.” (AP Photo/Kichiro Sato)

The futures market is struggling to nail a price on Bitcoin.

The normal state of the futures market is backwardation. The opposite of backwardation is called contango, meaning the nearby futures price is higher than the spot price. Supply and demand are out of sync. You see contango in markets of scarcity. Bitcoins are finite. Demand for them as a transactional currency is eroding.

“Bitcoin’s problem is how it works as a payment, from both a reliability standpoint and from a cost standpoint,” says Xiahong Lin, founder of Bodhi, a China-based decentralized prediction market platform. “When you add price volatility to this, these factors make Bitcoin less attractive as a currency and more attractive as a store of value.”

Workers check fans on mining machines at the Bitfarms cryptocurrency farming facility in Quebec, Jan. 24, 2018. The technology has not caught up to demand. Bitcoin processing times make it an impractical form of payment.&nbsp; Companies are ditching it left and right. Photographer: Christinne Muschi/Bloomberg

See: Goldman Sachs Caves: Bitcoin Is Money — Forbes

2018 Will See Many Smaller Cryptocurrencies Double In Value — Forbes

Will The Battle For The Soul Of Bitcoin Destroy It? — Forbes

On the China front, Beijing was the first government to crack down on Bitcoin exchanges. India just announced a crackdown. That’s at least 2.6 billion people — in theory — that will be shut out of the Bitcoin market.

Of course, savvy investors can go to Hong Kong or Singapore or Japan, but bans and rumors of bans take large chunks of potential new customers out of the market. Moreover, it sews distrust in cryptocurrency even as hundreds of coins have gained a thousand percent over the two years. Bitcoin is up 46,000% in five years. One Bitcoin was worth $19.63 on Feb. 1, 2013.

South Korea has also announced bans. The country is famous for arbitrage plays, where locals are buying bitcoin cheap on a home-based exchange on margin, and selling it on a higher priced exchange. The Korean government has pulled back from an outright ban, but concerns remain.

When a currency becomes less useful, it naturally weakens. Bitcoin has its flaws — not the least being transaction speeds and fees.

To slow. Too expensive. With fewer companies agreeing to accept bitcoin, its use as a form of payment is looking less likely. Bitcoin is better thought of as a store of value, like gold. (Shutterstock)

“Take your (Bitcoin) profits, right now,” says Savio Tung, a recently retired CIO for $21.4 billion private equity firm Investcorp in New York.

Dmitry Zhulin, co-founder of INS Ecosystem, a blockchain company connecting grocery manufacturers directly with consumers, says Bitcoin is already viewed as an inefficient payment method. Like Goldman Sachs wrote in a report to clients last month, he too likens Bitcoin to gold.

“I’m not convinced that the move away from Bitcoin by Stripe or Steam or any other company will make an impact because of its known inefficiences already,” says Zhulin. “What will be interesting to see is how new solutions to this problem fare down the line.”

Stripe said the company was still “optimistic about cryptocurrencies” overall.

“There are a lot of efforts that we view as promising and that we can certainly imagine enabling support for in the future,” Tom Karlo, a Stripe product manager, wrote in a company blog post on Jan. 23. “Bitcoin…may become viable for payments again in the future.”

For now, and for many, Bitcoin is not (yet) money.

The big technical test is at $8,000. Buyers need to program a stop-loss at these levels, says Fernando Pertini, founder of Millenia Asset Management in San Jose, Costa Rica.

“I believe we will see bitcoin back to $2,500,” he says. “Maybe even lower.”

“>

Traders work in a trading pit at the Chicago Board Options Exchange. Trading in bitcoin futures began in December. The most active bitcoin future is struggling to keep up with the spot price. Bitcoin is now around $7,500. The XBT/G8 was priced at $8,390 on Thursday. (AP Photo/Kiichiro Sato)

The market cap of the world’s top cryptocurrencies has fallen from around $620 billion to $379.3 billion in less than two months. Most of it is due to Bitcoin, the market leader. Bitcoin may be in a freefall because demand for the cryptocurrency as a usable form of payment is slipping, if not dying altogether.

At least four companies have given up on Bitcoin transactions.

Stripe said it will stop all Bitcoin transactions by April 23. Microsoft is reportedly no longer accepting it as a means of payment. Steam, a software developer geared toward gamer technologies, stopped accepting Bitcoin in December citing transaction costs.

Transaction speed is another issue. Bitcoin processes under 10 transactions per second. By comparison, Amazon processes hundreds of transactions per second using a good old-fashion credit card.

“The network is currently overloaded due to arbitrage (among Asian Bitcoin traders) and the rush to trade Bitcoin,” says Ruslan Tugushev, CEO of Storiqa, a blockchain company for e-commerce with its own token, STQ. “The blockchain gets overheated like a frying pan when Bitcoin is used for payment purposes too instead of as a digital commodity. I think faster transaction speeds will require higher commissions for (Bitcoin) miners,” he says of the companies and individuals that own the computer equipment used to process Bitcoin transactions.

Gig-economy platform provider Fiverr no longer accepts Bitcoin.

And in an odd twist, the North American Bitcoin Conference stopped accepting Bitcoin payments for tickets due to transaction fees and slow processing times for payment, Business Insider reported on Jan. 10.

“Its utility as a medium of exchange is confronting bigger challenges than expected,” says Vladimir Signorelli, founder of Bretton Woods Research in New Jersey. “These are huge headwinds for Bitcoin.  Whenever the Bitcoin universe shrinks, you see the price drop.  There is almost a panic about it,” he says. “China regulations and bans couldn’t stop bitcoin, but maybe markets shutting it out as a form of payment will.”

Bitcoin has fallen from its high of $18,979 on December 15, 2017. Last month, investment advisor Savio Tung from Investcorp in New York told investors during a China conference: “On bitcoin, take the money and run.” (AP Photo/Kichiro Sato)

The futures market is struggling to nail a price on Bitcoin.

The normal state of the futures market is backwardation. The opposite of backwardation is called contango, meaning the nearby futures price is higher than the spot price. Supply and demand are out of sync. You see contango in markets of scarcity. Bitcoins are finite. Demand for them as a transactional currency is eroding.

“Bitcoin’s problem is how it works as a payment, from both a reliability standpoint and from a cost standpoint,” says Xiahong Lin, founder of Bodhi, a China-based decentralized prediction market platform. “When you add price volatility to this, these factors make Bitcoin less attractive as a currency and more attractive as a store of value.”

Workers check fans on mining machines at the Bitfarms cryptocurrency farming facility in Quebec, Jan. 24, 2018. The technology has not caught up to demand. Bitcoin processing times make it an impractical form of payment.  Companies are ditching it left and right. Photographer: Christinne Muschi/Bloomberg

See: Goldman Sachs Caves: Bitcoin Is Money — Forbes

2018 Will See Many Smaller Cryptocurrencies Double In Value — Forbes

Will The Battle For The Soul Of Bitcoin Destroy It? — Forbes

On the China front, Beijing was the first government to crack down on Bitcoin exchanges. India just announced a crackdown. That’s at least 2.6 billion people — in theory — that will be shut out of the Bitcoin market.

Of course, savvy investors can go to Hong Kong or Singapore or Japan, but bans and rumors of bans take large chunks of potential new customers out of the market. Moreover, it sews distrust in cryptocurrency even as hundreds of coins have gained a thousand percent over the two years. Bitcoin is up 46,000% in five years. One Bitcoin was worth $19.63 on Feb. 1, 2013.

South Korea has also announced bans. The country is famous for arbitrage plays, where locals are buying bitcoin cheap on a home-based exchange on margin, and selling it on a higher priced exchange. The Korean government has pulled back from an outright ban, but concerns remain.

When a currency becomes less useful, it naturally weakens. Bitcoin has its flaws — not the least being transaction speeds and fees.

To slow. Too expensive. With fewer companies agreeing to accept bitcoin, its use as a form of payment is looking less likely. Bitcoin is better thought of as a store of value, like gold. (Shutterstock)

“Take your (Bitcoin) profits, right now,” says Savio Tung, a recently retired CIO for $21.4 billion private equity firm Investcorp in New York.

Dmitry Zhulin, co-founder of INS Ecosystem, a blockchain company connecting grocery manufacturers directly with consumers, says Bitcoin is already viewed as an inefficient payment method. Like Goldman Sachs wrote in a report to clients last month, he too likens Bitcoin to gold.

“I’m not convinced that the move away from Bitcoin by Stripe or Steam or any other company will make an impact because of its known inefficiences already,” says Zhulin. “What will be interesting to see is how new solutions to this problem fare down the line.”

Stripe said the company was still “optimistic about cryptocurrencies” overall.

“There are a lot of efforts that we view as promising and that we can certainly imagine enabling support for in the future,” Tom Karlo, a Stripe product manager, wrote in a company blog post on Jan. 23. “Bitcoin…may become viable for payments again in the future.”

For now, and for many, Bitcoin is not (yet) money.

The big technical test is at $8,000. Buyers need to program a stop-loss at these levels, says Fernando Pertini, founder of Millenia Asset Management in San Jose, Costa Rica.

“I believe we will see bitcoin back to $2,500,” he says. “Maybe even lower.”

Let’s block ads! (Why?)


Source link

Leave a Reply

Your email address will not be published. Required fields are marked *

Check Also

UK Mosque Collects 14,000 GBP Worth of Cryptocurrency Donations

Cryptocurrency is not always considered to be halal for the Islam. The decision by a UK mo…