Bitcoin At Mid-Year: Industry Struggles With Tough Times, Hopes For Price Growth

Investing, News | June 20, 2018 By:

Bitcoin has had some rocky times this year. Gone are the heady days when new price highs were established weekly and pundits made predictions of the legacy cryptocurrency reaching mid-five figures (or higher) in the next few years.

As we reach the year’s mid-point, Block Tribune asked some industryites for their take on where things stand with bitcoin and where they might be heading. The remarks received reflect a mix of reality and optimism, along with a belief that much needs to be done in regulation, security, marketing and customer service to grow the coin.

Here are the responses:

Carl Kirchhoff – Co-Founder and CEO of SportsFix and Co-Founder of EverSport:

1) Why is bitcoin’s price dropping?

ANSWER: There are various factors affected Bitcoin price drop during past months and some of the reasons are as below:

Major hacks/thefts on crypto exchanges:

-Binance one of the world’s largest cryptocurrency trading platforms was targeted by thieves in early March, some of the panicked traders reported seeing their balances drained and their holdings sold at market rates after being converted to another crypto.
– On May, Youbit, a South Korean Bitcoin exchange, was hacked. Almost 4,000 Bitcoins or 17% of its assets, worth about $48 million, were stolen. A Reuters article said that all customers cryptocurrency assets would be marked down by 25%. That isn’t very comforting to cryptocurrency investors.

– South Korean cryptocurrency exchange Coinrail was hacked in last few weeks. A tweet from Coinrail confirming the cyber-attack sent the price of bitcoin tumbling 10% on Sunday to two-month lows.

– Bitcoin lost $500 (£372) in an hour, dropping to $6,627 on the Luxembourg exchange Bitstamp, while most other digital currencies also recorded large losses.

Social media ban advertisements:

-Twitter began blocking crypto ads (crypto and ICOs) on 26 March 2018, as it became the latest internet giant to crack down on the digital assets, following on from the decision by Google and Facebook. The advertisement of ICOs and token sales will be prohibited globally.” The announcement triggered the price of bitcoin to plunge from $8,316.45 to $8,049.63.
-Google’s announcement that it would ban cryptocurrency advertising from its pages from June on the grounds that it considers it “deceptive content” was also a major blow to the sector.

A party holding huge amount of BTC:

Nobuaki Kobayashi, the Mt. Gox. Trustee, that he sold $400 million of Bitcoin and Bitcoin cash in the January and February this year. He still owns $1.7 billion worth of Bitcoins and this is adding further fears in the market.
SEC/regulators regulations/news:

Regulators could have substantial impact on Bitcoin and Crypto Currency prices as multiple countries have either implemented some regulations or have discussed plans to limit them. If the regulations become too burdensome they could negatively impact the usage and therefore prices. The US, Japan, South Korea and China regulations have significantly impacted the market so far.

Securities Exchange Commission (SEC) issued a statement on March in reaction of Binance hack news that “cryptocurrency platforms should not be called by the name of exchanges since it creates an illusion of regulated activity. Investors are misguided in believing various online trading platforms to be SEC-registered and regulated marketplaces when they are not”, SEC said.

Market fear and lack of interest:

In addition to the price risk from the fluctuating exchange rate, there is currently a very heated debate about the bitcoin ‘software’ with competing proposals on how to scale bitcoin in order to facilitate more transactions (BitcoinXT, BIP10x).

Breaking down the trust, scam sites and fraud ICOs:

Vulnerable softwares claimed to mine cryptocurrencies while when you do the math it is just Ponzi system.
Too many of fake/illegitimate ICOs.

2) Where do you think the floor is?

There is no ultimate answer to the price floor of bitcoin, as that depends on various factors as mentioned above.

Despite all those factors, bitcoin miners (like other commodity miners) will earn only enough returns to compensate them for their cost of capital. Unlike with technology companies that possess trade secrets or market power, bitcoin miners cannot earn large excess returns in the long run ensuring bitcoin’s equilibrium price will be only modestly higher than the cost of mining. Any higher, as it is currently, and arbitrageurs will start mining because there are no barriers to entry and they can make riskless returns by mining bitcoin and selling it in the futures market.

If the price falls below the cost of mining, the miners will not be able to earn their cost of capital, and it will not be in their economic interest to participate and provide the infrastructure for the bitcoin blockchain. Without the computing power provided by the miners, the system would eventually collapse, rendering bitcoin worthless. However, with a valuable bitcoin network currently in place and many enthusiasts who strongly believe in its prospects, this scenario is highly unlikely in the short run.

The floor on the price of bitcoin is estimated around $5,000 to compensate for the cost of mining and a modest profit. The equilibrium price will increase as the mining costs increase. Once there are no more bitcoins to mine, its value will be driven by the role it will play in the blockchain economy.

3) What is the price point for a sustained rally?

Sustainability is an outcome of maturity and public acceptance in the overall market. Bitcoin is gaining momentum with legalization in some countries and organizations. Ethereum on the other hand is growing in market dominance as it has a great vision and potential to be the blockchain platform to lead the way for Web 3.0.

Above $10,000 dollars valuation of a BTC and its constant stability around that range for about a month causes a drastic growth in the market and surges prices of Altcoins mutually or even further.

4) Recent reports indicate there may be some bitcoin price manipulation. Do you believe them? Why or why not?

On early Feb, over $100 billion was wiped off the global cryptocurrency market in 24 hours, concerning over tighter regulation and worries that the bitcoin price was manipulated on a major exchange. The total market capitalization or value of all cryptocurrencies in circulation stood at $405 billion then, according to data from CoinMarketCap.com, which takes into account the prices of digital coins across a number of key exchanges. This was a fall of $112.6 billion in value from a day before.

A study conducted by University of Texas finance professor on the possibility that digital currency “Tether” could have been used to inflate prices of other cryptocurrencies. They analyzed publicly available blockchain transaction records and found that there was a pattern of

Tether being used to buy bitcoin at certain moments, typically following price drops.
Their findings suggest that Bitfinex, an exchange which created and sold Tether, used their currency to snap up bitcoin and drive demand for it, bumping up prices.

Tether “accounts for more transaction volume than US dollars” for bitcoin, the researchers say. They wrote that bitcoin’s surge in late 2017 correlates with movement of Tether from Bitfinex to other exchanges in the hours before the valuation increased. Other digital currencies like Ethereum and Litecoin soared at around the same time by as much as 64 percent. The prices climbed faster on exchanges the dealt in Tether than on those that didn’t.

Around the time of the bitcoin peak, cryptocurrency experts suspected Bitfinex was involved in manipulation, and the US Commodity Futures Trading Commission subpoenaed the exchange after concerns were raised. The paper does not prove definitively that Bitfinex was tangled in price manipulation, but the evidence gives a strong indicator that it was involved.
This is not the first time possible manipulation, there have been accusations of an exchange inflating bitcoin. Another paper indicated that price manipulation at Mt. Gox, which was once the biggest bitcoin exchange, sent bitcoin soaring from $150 to $1,000 in two months in 2013.

Despite all above, U.S. Commodity Futures Trading Commission (CFTC) demanded extensive trading data from several cryptocurrency exchanges in order to investigate whether there has been price manipulation in the crypto market on June 8. On May 24, Bloomberg also reported that a criminal probe into Bitcoin (BTC) and Ethereum (ETH) price manipulation by crypto traders had been opened by the U.S. Department of Justice (DOJ) in conjunction with the Commodity Futures Trading Commission (CFTC).

All the above said, there is a possibility that the price is been manipulated by some parties in the market in certain time frames.

Shidan Gouran – President and COO of Global Blockchain Technologies Corporation:

1. Why is Bitcoin’s price dropping?

Currently, Bitcoin’s price is dropping because of three factors. The first and biggest factor is by far the Coinrail hack earlier this month. While this was not a hack specific to Bitcoin (in fact, the exchange’s press release didn’t even say that Bitcoin was stolen), news headlines of exchange hacks tend to affect the price of Bitcoin as the most dominant cryptocurrency. The second factor is the University of Texas study that suggested the price of Bitcoin was manipulated, leading to the late 2017 spike in Bitcoin’s price. The third factor is the “post-boom” market correction of Bitcoin, based on much speculative investing driving the cryptocurrency to its $17,000 high in December. This correction mirrors the performance of HP and Microsoft’s stocks around the dot-com boom, where it spiked from speculation and dropped off shortly afterward. We believe the same kind of correction happened for Bitcoin, which is one contributing reason to its price drop.

2. Where do you think the floor is?

We can safely estimate that the floor price of Bitcoin is about $5,000. This is based on the approximate hard costs of mining a Bitcoin.

3. What is the price point for a sustained rally?

It is possible that it could go back up to more than $10,000 per coin. As most new ICOs continue to fail, cryptocurrency investors can readily recognize that Bitcoin is perhaps one of the more stable cryptocurrencies currently on the market. Between an established position as the running leader, and an improving regulatory environment, there is room for recovery – but likely not for growth to or past the $17,000 high Bitcoin saw last year.

4. Recent reports indicate there may be some Bitcoin price manipulation. Do you believe them? Why or why not?

This study from the University of Texas appears to be sound on the principles of traditional financial evaluations. However, the spike that they are claiming was caused by manipulation happens to almost identically mirror HP and Microsoft’s stock as it went into and out of the dot-com bubble in 1999 and 2000. It so happens that this occurred for them seven years after the Internet as we know it today became available for public use. Bitcoin’s spike occurred after about the same duration of existence. On this basis alone, we believe that the study is questionable, because it does not take into account the spike’s similarity to other tech-related events on public markets. Further, they are evaluating Bitcoin as though it is the same thing as stocks or fiat currencies. While it does share some properties, there are enough differences that it would not be reasonable to compare them as apples and apples.

Reginald Ringgold, Founder of Blockvest DEX:

1) Why is bitcoin’s price dropping?

Simple answer is Supply and Demand. The current Offers (Sellers) exceeds the number of Buyers (Bidders). But the answer you were looking for is, this market is not as liquid as other more established markets such as the FX markets which trade over $3-$5 Trillion per day with the spot market accounting for a third of that volume. The illiquidity and price decline of Bitcoin is a result of the recent uncertainty surrounding last year’s price manipulation of Bitcoin and Tether. Crypto is very volatile but the Blockchain Technology that Bitcoin is built on is here to stay.

2) Where do you think the floor is?

Coming from a Technical Analysis background, we would trade with what is called the Quarters theory. In this theory we would buy and sell around whole numbers. Because we understand that in trading anything you are not trading just securities or commodities you are trading people and their emotions. The average investor buys at retail stores at round whole numbers like $1.00 or 100 or $1.50 or $150. So therefore, if I was to give an accurate prediction of a floor on the price of Bitcoin, I would have to say around $5,000-$5,500.

3) What is the price point for a sustained rally?

Above $10,000 as there is a lot of Supply and willing sellers on the sell side around $10,000. This area has been causing the cryptocurrency to struggle around the $9,750 area every time price approach it. So, the price of Bitcoin is going to have to break through this ceiling and create a new floor and support level around $10,000 to maintain and ignite a sustained rally.

4) Recent reports indicate there may be some bitcoin price manipulation. Do you believe them? Why or why not?

Yes, there is some validity to these reports although it is unsubstantiated they have some degrees of truth to them. The correlation between Bitcoin and Tether and possible price manipulation has been a huge concern for the crypto community and has been since Bitfinex was subpoenaed by American regulators. This is a prime example of the flaws inherent in a fully centralized environment that Tether was operating in. Although the core principal that Blockchains are built on which is “Decentralization” are revolutionary and innovative, some organizations might utilize blockchain technology, but are not operating with a Decentralized Governance structure. As you can see was the case with Tether and Bitfinex as well as other Exchanges such as OkCoin and its consequences.

Christian Ferri – President and CEO of BlockStar

1) Why is bitcoin’s price dropping?

Regulation heightening leading to uncertainty, market saturation of ICOs, general sentiment that many ICOs are “scams”. This leads to investors waiting by the fence, deflating the demand for crypto-entry asset, Bitcoin, and affecting its price.

2) Where do you think the floor is?

Resistance levels are pointing to about $6500 right now

3) What is the price point for a sustained rally?

I don’t think the price will be the determining factor for a sustained rally. I believe it’ll be a renewed confidence of Bitcoin from the market, mainly due to regulation clearing, and adoption by big brands or non crypto influencers.

4) Recent reports indicate there may be some bitcoin price manipulation. Do you believe them? Why or why not?

Crypto markets have been manipulated since their inceptions, mainly by large mining pools and whales.

Ben Way – CEO of Digits.io:

1) Why is bitcoin’s price dropping?

I think this is a rationalization of the market after the bubble(and price manipulation) late last year. Your finding a lot of volatility as investors are trying to guess what could be the bottom of the market could be, even though the market is going down it also seems to becoming less volatile over time which probably indicates it is reaching equilibrium.

2) Where do you think the floor is?

Personally, I think we are close to floor at around $6500, but this is crypto, anything can happen.

3) What is the price point for a sustained rally?

I think when we approach $10K we will see a push to get it over $10K again, my medium-term view is that it will end up around $12k and then stagnate for a while before increasing again.

4) Recent reports indicate there may be some bitcoin price manipulation. Do you believe them? Why or why not?

I think there was probably a good deal of price manipulation both large and small scale, this is what happens in unregulated markets, it comes with the territory and investors should factor that in to the risk profile of the market, though I think it is a lot harder to manipulate now that everybody is paying close attention and regulators are circling….