The death of cryptocurrency has been reported a thousand times by a thousand people. Most of those people knew nothing about the topic they were writing about and wrote of the death of crypto because they wanted to see it – not because there was any prospect of it happening. If you’re a crypto investor or even if you’re just someone who follows cryptocurrency news, you’ll be fully aware by this point that the value of cryptocurrencies can go up and down like a yo-yo, often with no rhyme or reason behind it. That’s why we’ve all learned not to panic during times when values go down. We’re going through such a period right now, but is it different this time?
Of all the criticisms that have been levelled at Bitcoin, Ethereum, and other cryptocurrencies over the years, one sticks more than most. It’s the idea that cryptocurrency is too sensitive. Yes, there are inherent advantages of a decentralised currency, but there are also inherent disadvantages. One of them is that the value of a cryptocurrency drastically varies when people talk about it. If someone influential talks positively about a coin, the value of that coin goes up. The textbook example of that is Elon Musk talking up Dogecoin and turning something that was supposed to be a joke into a viable cryptocurrency. The flip side is that when someone influential talks negatively about a coin, the value of the coin might nosedive. Right now, we’re seeing that with Warren Buffet and Bitcoin.
With all due respect to Warren Buffet – which is a lot of respect – he’s 91 years old. He’s not the target market for cryptocurrency. There’s no reason for the value of a digital currency to fluctuate when Buffet expresses his opinion of it, and yet it did. In recent comments to the press, Buffet says he wouldn’t buy all of the Bitcoin in the world if he were offered it for £25 because he wouldn’t understand what to do with it. Bitcoin responded by dropping by 1.4%. From that, we can determine two things. The first is that Warren Buffet’s understanding of cryptocurrency is absolutely zero. The second is that Bitcoin, for all of its many positives, is still in too fragile a state to be relied upon by serious investors. The 1.4% drop came as part of a 5% drop over the course of the full week. All experienced investors know and understand what volatility is, but there’s a difference between volatility and instability. All too often, Bitcoin demonstrates the latter rather than the former.
The problems associated with Bitcoin’s instability aren’t limited to Bitcoin. Where Bitcoin goes, the rest of the cryptocurrency market follows. Within twenty-four hours of Buffet’s caustic comments, the entire cryptocurrency market cap fell by 1%. Ethereum repeated its usual trick of aping the behaviour of Bitcoin, matching its 5% week-on-week drop. As of the time of writing, the value of Bitcoin is around £30,300. Those heady days of £54,000 seem like a long time ago now, and all of those supposed experts who predicted that Bitcoin would break the six-figure barrier in 2022 are starting to look clueless. We won’t completely rule out the idea of the price recovering and then soaring before the end of the year because, by this stage, we know never to rule anything out with Bitcoin, but if it were to reach £100,000, it would be the most amazing development in the Bitcoin story to date.
If you’re a hardened Bitcoin or crypto proponent, you might have reached this point in the article and thought, “so what’s new.” You’ve seen and heard it all before. Prices go down; prices go up. We get that. However, there’s something different this time. We think you need to be aware of two additional factors. The first is that after many years of threatening to do so, the European Union seems ready to actively attack Bitcoin while sheltering Ethereum. Policy-makers within the EU have decided that the pressure put on power grids by people attempting to mint Bitcoin is unacceptable, and something ought to be done about it. The EU is undoubtedly weaker than it used to be now that the UK is no longer part of it, but the combined power of the bloc shouldn’t be underestimated. If Germany, France, Spain, Italy and other EU nations decide to move against Bitcoin as a bloc, the effect will be enormous.
The second thing to be aware of is that the things that usually make the price of Bitcoin recover don’t appear to be working this time. Shortly after Warren Buffet made his comments, Tesla made an SEC filing stating that Bitcoin has long-term potential as a liquid alternative to cash. That’s the sort of statement of confidence that usually sends the price of Bitcoin soaring. Instead, it failed to make any impression at all. Buffet’s comments damaged the price of Bitcoin, and Tesla’s fairly naked attempt to reverse the trend achieved nothing. If Bitcoin has started responding badly to criticism but no longer responds at all to praise, Bitcoin investors have a serious problem on their hands.
NFTs might have had something to do with this, too. The poor reputation of NFTs has damaged people’s perception of the blockchain and of cryptocurrency as a whole. One too many NFT scams has resulted in a situation not entirely unlike what happens to new casino sites. When a casino site is launched, it’s picked up by a new casino sister site review website and promoted. There’s an initial rush of customers, the site makes money, and the business appears to be viable. When the initial excitement wears off, one of three things will happen. The first possibility is that everybody enjoys the new casino website and stays there for the long term. The second is that they decide they don’t like it, and they return to whichever casino they played at previously. The third is that another shiny new casino sister site is launched, and everybody runs off to see it. In two out of three of those scenarios, the casino loses value within weeks of opening. That’s precisely what’s happened to nine out of ten NFTs, which are sold vastly over-value when they’re minted and then depreciate almost immediately when the teams behind them either rug pull or break promises. NFTs have made the blockchain look like a scam, and the effect of that can’t be underestimated.
The price of Bitcoin will recover eventually. It always does. Whether it ever recovers to hit the highs we’ve seen from it previously is another matter altogether, and we’ve presented more than one reason why it might not. At the risk of sounding like all the doom-laded crypto articles you’ve read in the past, the glory days of Bitcoin might be over.
