Bitcoin in 2017 had a good run. From just around $1,000, Bitcoin ended up somewhere near $20,000. However, things went south since the start of the year. In fact, Bitcoin dropped below $3,500. It was the lowest Bitcoin price since September of last year. And for the critics such as Nouriel Roubini, the NYU economist who predicted the 2008 crisis, he mentioned that cryptos went bust.
A Drop To Zero?
During the time when Bitcoin’s price was still around $7,000, Atulya Sarin who is a Santa Clara University Professor of Finance published an opinion that argued that Bitcoin could be doomed considering the rise in the cost of mining and the ability of investors to short Bitcoin in the futures markets. And now, Sarin called it once again that BItcoin is now “close to becoming worthless”. Sarin also mentioned that Bitcoin has entered a “death spiral”.
For Sarin, he believes that the price is now below the cost of mining could get Bitcoin to have a “swift and painful drop to zero”. What it does is that it can drive miners out of the market completely. It has been reported in the past few days that crypto miners are now selling their mining rigs as junk since these aren’t profitable anymore. And also, since miners are quitting, the hash rate in the network has decreased.
He said that “Mining at a cost higher than the cost at which you can sell in the futures market destroys value. So, any rational investor—even who strongly believes the price of Bitcoin will rebound—has no incentive to mine if the cost of mining is higher than the future price and is better off buying in the futures market. And unlike gold, which can retain its value even if mining activity stops, Bitcoin can have no value absent the mining activity that maintains the ledger who owns it. Absent the mining activity, bitcoin is just a set of encrypted numbers with no value”.
Is This The End?
Many are asking if it is really the start of the end? Bitcoin has lost 80% of its value and miners are no longer interested at the moment to mine Bitcoin. However, keep in mind that just like other Proof-of-Work (PoW) cryptocurrencies, the mining difficulty is adjusted. And this means that it is just a matter of time before the hash rate and its price are going to meet halfway.
You also have the likes of Tom Lee who remained optimistic when it comes to the crypto market. He even said that we are entering the golden age of crypto. Keep in mind that it isn’t the first or the last time that Bitcoin will have a massive correction. Mike Novogratz believes that by 2019 or 2020, the bearish market is expected to flip.
For Sarin, he is quite pessimistic about the recent correction because the “losers” in the bearish market are profit-driven investors rather than those who truly believe the future of Bitcoin and how it can revolutionize finance. Are we seeing the beginning of the end for crypto? Or are we going to see another bull run that will surprise critics?