Bitcoin enthusiasts breathed a sigh of relief yesterday, as the popular cryptocurrency bounced off $3,650 and rose back over an all-important psychological support level of $4,000. For the greater part of the day, Bitcoin’s price gyrated below the $4,500 watermark, reclaiming a market cap in excess of $70 billion. Bitcoin’s share of the overall coinage market cap remained just above 53%, as well, an indication that alternative coin systems were behaving in a similar fashion as its leader. The question on everyone’s lips, however, is will this price point hold?
The initial reason cited by most industry pundits was that the “hard fork” of the Bitcoin Cash system brought enough uncertainty to the sector to cause weak-handed investors to jump ship. Bitcoin Cash, which actually was the result of a “hard fork” of Bitcoin, split into “Bitcoin ABC” and “Bitcoin SV” last week. A fork is a dividing point that signifies disagreement between the major support players within a coin system as to how the future should play out. When everyone cannot agree on a specific software upgrade, the consequence is a divorce of sorts and all the uncertainty that goes with it.
Forks are uncommon, but not so strange as to cause such a severe lack of faith. In retrospect, there were also other extenuating circumstances that contributed to the general malaise. Regulators around the world, including those in the EU, the U.S., and the IMF, were simultaneously making disparaging remarks about cryptocurrencies and their lack of intrinsic value, and postulating that, perhaps, central banks should step in to control the action. The lack of adequate security legislation to guide the evolution of virtual currencies was also noted, but efforts to correct this situation will take time.
Lastly, Bitcoin has long had the reputation of being a “safe haven” for its brethren in the crypto space, but during October, when stocks were depreciating rapidly, a subset of investors chose Bitcoin and other alternative coins as acceptable “stores of value”, at least until the bloodbath in equities subsided. When November rolled around, according to this theory, investors withdrew their funds to catch the anticipated recovery in stocks. Being perceived as a “safe haven” carries both an up and a downside with it.
Will Bitcoin lose more value? The jury is still out. A group of analysts saw a good sign in yesterday’s recovery, since it came at the same time that Jay Clayton, the Chairman of the SEC, was telling attendees at a Coinbase conference in Manhattan that he was reluctant to approve any application for a Bitcoin Exchange-Trade Fund (ETF). He was still “uncomfortable” with existing control measures within system exchanges. Bitcoin supporters view a BTC ETF as one necessary step for gaining material support from the institutional sector, a wave that could propel values to much higher levels.
Until that “wave” arrives, people that short for a living will continue to test levels of crypto support. Analysts have suggested that $3,500 will be the next major test going forward.