Bitcoin plunged below $5,000 on Monday, adding to what has turned into nightmare 2018 for investors who touted the cryptocurrency.
The continued declines come after bitcoin’s value shot up in December 2017, nearly touching $20,000. As of Tuesday, a single Bitcoin was trading around $4,400 — its lowest level of the year.
Bitcoin is not alone. Other popular cryptocurrencies have also plunged throughout the year, touching fresh lows this week. A cryptocurrency is a form of digital currency that is based on technology known as blockchain, in which computers compete against each other to solve complex math problems. That computing power creates a distributed, secure and transparent network ledger — commonly known as a blockchain — on which applications such as bitcoin can be built.
The rise in enthusiasm for bitcoin led to a rush of investment and speculation around cryptocurrencies and blockchain-related startups. Growing hopes that rising prices would attract institutions such as banks and governments also served to further lend legitimacy to bitcoin. Some analysts once predicted that bitcoin’s value could reach $100,000.
But declining prices have been met by growing skepticism and exacerbated by claims that bitcoin’s previous price increases were artificially inflated. The U.S. Justice Department is currently investigating whether bitcoin’s high market value last year was an outcome of traders manipulating the market. Investigators speculated that some traders of the cryptocurrency used Tether, a cryptocurrency used to predict the prices of other cryptocurrencies, to foster rises in bitcoin.
Patrick Paul Palacios, president and CEO of LoyalCoin, a company that offers a blockchain-based company rewards programs, said the investigation was one of the many reasons for bitcoin’s decline.
“It’s a combination of all these factors, which includes, of course, that everybody’s panicking.” Palacios said.
Palacios added that people who had invested in bitcoin when the price was rising rapidly were probably unprepared for a drop, leading to more volatility as people sold their investments.
“They don’t understand how crypto is working,” Palacios said. “There’s really a lot of volatility here for the newbies.”
Shone Anstey, executive chairman and co-founder of Blockchain Intelligence Group, explained how money quickly put into bitcoin by novice investors last year is just as quickly being taken out now as investors are “trying to lock in their gains before they evaporate.”
“Fast money moving in,” Anstey said. “Fast money getting taken out.”
Though the value of bitcoin is on a downward trend, Anstey warned against counting out the cryptocurrency or underlying blockchain technology.
“We overestimate technologies in the short term, but tremendously underestimate them in the long term.” Anstey said.
While some analysts predict a recovery in the long term, others suggest a turnaround could happen by the end of 2018.
Tom Lee, a Wall Street strategist, stood by his $15,000 year-end prediction for bitcoin during an interview with CNBC Tuesday.
Lee predicted that incoming waves of “institutional” adoption and “regulatory clarity” were factors that would eventually drive the market price of bitcoin upwards again.