The equivalent of $150 billion in the cryptocurrency market was lost in two days. Is there hope for the future of Bitcoin?

It is well known that bitcoin is a very volatile asset. How far this volatility can go, however, remains to be discovered. The last few weeks have given it a new, extraordinary taste. It took years to break through the $20,000 threshold (and when it happened, just at the end of November, it seemed to be a historic event), it then took only a few weeks to double its value and break through the $41,000 threshold, Friday 8 January. It took little time for the leap forward of a highly risky asset to make regulators prick up their ears. “Prepare to lose all your money” was the warning launched by the UK Financial Conduct Authority. The warning comes within hours of the rally.  Over the weekend Bitcoin began to plummet, losing over 25% of its value between Sunday and Monday and burning about $150 billion off of the cryptocurrency market.


What is happening to Bitcoin?

In recent days, the most famous digital currency has experienced unprecedented leaps forward. For experts, the strong movements we witnessed were in the air: on the one hand, the increase in interest from large financial institutions (which in recent times have begun to consider Bitcoin for their hedging strategies) , on the other hand, the market players (the introduction of Bitcoin payments by PayPal could have made history) and, again, the “halving” of last May (a sort of “inflationary” correction, which halved the volume of digital currency in circulation): all factors that have contributed to creating high expectations on Bitcoin. Expectations so high that, just last week, JP Morgan came to predict an increase of up to $146,000 in the long term: a colossal figure considering that, up to three months ago, Bitcoin prices were around ten thousand dollars. At the moment, however, Bitcoin is pricing around $34,334, down by 1.28% compared to Monday January 11th – when, it fell by more than 10% in a single day.


What is the future for Bitcoin?

As long as the support at $30,000 holds, the reversal is only psychological and the goal remains to hit $41,000 and the formation of new highs. The trend of the digital currency would therefore be following its natural course. On the other hand, the recent and sudden movements lead to questions about the future of Bitcoin as an asset: pure speculative tool? According to some CoinDesk experts, until now only the so-called “miners” have benefited from Bitcoin as a currency, i.e. those who “extract” Bitcoins (just as if it were a natural resource) from “mines” which are the very expensive server farms capable of completing the operations necessary to “create” new digital currencies. They are the miners who then resell the Bitcoins on the market, with profits that follow the trend of the prices in the market. But if the idea of ​​Satoshi Nakamoto (the secret identity under which the creator of Bitcoin is hiding) was to create a real currency, capable of acting as an alternative to national currencies, the road is still long. On the other hand, the fact that caution on the part of financial institutions still reigns around Bitcoin does not mean that the basic idea is to be discarded. Quite the contrary: there are already several projects in the pipeline for the creation of their own digital currency and, in 2020, 80% of central banks were studying solutions in this regard. Central bank digital currencies (CBDC) programs differ from Nakamoto’s Bitcoins because would be issued by a central authority, which would act as guarantor, as is the case with traditional banknotes, creating a crypto-fiat currency.  The future role of central banks in relation to cryptocurrency was further highlighted on January 13th when ECB President Christine Lagarde said this about Bitcoin, “For those who had assumed that it might turn into a currency — terribly sorry, but this is an asset and it’s a highly speculative asset which has conducted some funny business and some interesting and totally reprehensible money-laundering activity.”

Michele Morgante

Account Manager
mmorgante@tvmarkets.com