EDINBURGH — Popular cryptocurrency Bitcoin is collapsing, with worse likely to come. That’s the message in The Wall Street Journal, which puts the $4,000 weekend plunge in value down to speculators fleeing the market. The digital currency could easily fall much further, as cryptocurrency miners appear to be losing interest because there’s no longer enough in it for them. Analysts compare the current volatility in the cryptocurrency markets to the dotcom boom and bust. Right now, digital currencies look like they’re in the bust phase, though some are optimistic that values will eventually recover. – Jackie Cameron
___STEADY_PAYWALL___
Bitcoin just had the week from hell.
The cryptocurrency plunged below $4,000 over the weekend. That means bitcoin has lost nearly a third of its value in seven days, one of its worst weekly selloffs on record. The digital currency has now fallen by about 80% since peaking near $20,000 late last year.
Tony Gu, founding partner at NEO Global Capital, said the rout was down to just one thing.
“Panic.”
Many speculators have fled the market, as shown by falling trading volumes. And a split this month in a smaller currency called Bitcoin Cash has created tensions. The prospect of large investors selling bitcoin to cover the risks of a fall in the value of their Bitcoin Cash holdings has hurt sentiment.
Now, another worry has emerged: Cryptocurrency miners, the outfits that solve complex equations to generate new digital coins, seem to be losing interest. The amount of computing effort expended by miners, known as the hash rate, has started falling.
The hash rate rose for much of the year even as cryptocurrency prices slumped, suggesting people remained optimistic prices would bounce back. But it has fallen sharply in recent weeks, according to Blockchain Ltd., a cryptocurrency-wallet service and data firm. That suggests fewer miners are jumping into the network.
“Bitcoin’s value is always driven by the intensity of demand and supply,” says Edith Yeung, a partner at 500 Startups, an early-stage venture fund. “If the miners stop mining, bitcoin will not function… and the overall market will lose confidence. If there is no confidence, people will freak out and sell even more.”
Read also:Â Bitcoin just turned ten years old, but is still not all grown up
The sour mood stands in contrast to a year ago, when cryptocurrencies captured the imagination of individual investors as prices skyrocketed.
Mr. Gu, whose blockchain investment fund in Singapore manages about $400 million in assets, is optimistic the market will recover. “Money is made when there is blood in the streets,” he said.
But others say there could still be pain ahead.
“It’s hard to look at the price charts of the big crypto assets and not cringe,” Fred Wilson, a partner at Union Square Ventures in New York and an early bitcoin investor, wrote on his blog. He drew a parallel to the moves seen when the tech bubble burst.
Back then, Amazon.com Inc. lost 95% of its value from December 1999 through October 2001. The online retail giant has long since recovered. “I think things will get worse before they get better,” Mr. Wilson said.
Write to Steven Russolillo at [email protected]
