Is this the end of bitcoin?

Selling has gathered pace, but participants remain divided over prospects. Award-winning cryptocurrency writer Gary McFarlane discusses both sides of the coin.

We do indeed live in historic times. So much so that you too can now say you were there for one of the salient moments in the history of the financial world; up there with Tulip Mania, the South Sea Bubble and dotcom boom is the Great Bitcoin Bubble.   

This year's deflation of that speculative mania has quickened at a pace that some say threatens the entire industry. 

As always, sifting fact from fiction and vested interests from balanced analysis is a difficult one in the crypto world.

First off, though, we can agree on certain facts of the market – in other words prices, despite the suspected difficulties regarding market manipulation.

The crash this week

Bitcoin has lost 33% of its value since our last report on 16 November. 

As with $6,000, successive apparent support levels, notably at $4,800 and $4,200, have been easily breached as the crash continued this week. 

Bitcoin is currently priced at $3,700, according to coinmarketcap, as market watchers try to predict the bottom. 

Yesterday's mini recovery of sorts, which saw the leading cryptocurrency bounce higher off $3,500 didn't last long. Bitcoin clearly didn't like the weather above $4,000, which suggests we will probably be visiting a sub-$3,000 print sooner rather than later, although bulls will hope to find confirmation of support at $3,500.

Source: interactive investor    Past performance is not a guide to future performance

BTCUSD 1-hour chart. Source TradingView (red 200-day Moving Average, green 50 MA)

Price targets and wishful thinking

It is hard to see what is on the immediate horizon that might catalyse the price higher before year-end, although many crypto talking heads are maintaining what look like highly unrealistic price predictions. 

Tom Lee from the Wall Street analyst firm he founded, FundStrat, for example, despite having shaved $10,000 off his prediction, is still holding out for a $15,000 finish to 2018.

There are some significant straws in the wind though for bulls to clutch at.

Nasdaq bitcoin futures a game changer?

Bloomberg news today reveals that the tech-focused Nasdaq exchange is seeking approval for a bitcoin futures product launch in the first quarter of 2019, and is currently working closely with the US derivatives markets regulator, the Commodity Futures Trading Commission (CFTC).

Also, the launch of Fidelity Digital Asset Services early next year and the Bakkt crypto platform from Intercontinental Exchange (owner of the New York Stock Exchange) on 24 January, should cheer crypto investors. 

Bakkt, which will be a one-stop shop for crypto aimed at both institutions and individuals who want to trade and store crypto as well as use it to buy goods and services, may help to onboard institutions interested in the sector.

That's certainly the thinking of Sonny Singh, chief executive of crypto payments company BitPay. He told Bloomberg on 21 November that the price will reach $15-20,000 next year on the back of traditional players entering the sector.

On the adoption front, the Wall Street Journal reported two days ago that the US state of Ohio is allowing businesses to pay their taxes with bitcoin. 

Commenting on the news, the state Treasurer Josh Mandel said: "I do see [bitcoin] as a legitimate form of currency." Ohio is a rust-belt state and presumably sees being crypto-friendly as a way of attracting skilled workers and tech industries.

Capitulation! Miners going bust

However, there are plenty of indicators that point in an altogether different direction for prices and the industry as a whole.

In the bearish corner is news that Coinbase's head of policy Mike Lempres is jumping ship to take a position at venture capital firm Andreessen Horowitz, although it should be said that AH is known for its plentiful investments in blockchain start-ups.

Also, before any recovery can take hold, there must be a clear-out of the old to usher in the new. 

In that regard, capitulation is the new watchword – not just by market participants but industry companies too. 

Mao Shixing, founder of mining pool F2Pool, says as many as 600,000 miners have left the business, with pictures of mining rigs apparently dumped in the streets a commonplace on Chinese social media.

Those numbers are borne out in the falling hashrate (computing power deployed to verify transactions) on the bitcoin network.

There are also persistent rumours circulating of trouble at Bitmain, the world's largest crypto miner and manufacturer of the specialised ASIC chips used to mine bitcoin. 

Bitmain is probably burning through its cash pile and its initial public offering may be in jeopardy. 

Competing miner Canaan abandon its own IPO a couple of weeks back.

UK's FCA investigating 50 crypto firms

On the regulatory front, the UK's Daily Telegraph newspaper reported yesterday that 50 cryptocurrency firms are being investigated. 

That could be bad news for the companies that are the subject of the investigations, but it should be seen as a positive for the sector in the medium to long term. 

The Financial Conduct Authority (FCA) is looking into whether the firms have been operating in financial services without permission, according to the Telegraph report.

The newspaper made a Freedom of Information request to obtain the information. The FCA is responding to mounting complaints from consumers, many of whom will have lost substantial sums after buying at or near the top of the market.

Since May this year, the FCA has doubled the number of crypto firms it is investigating.

The UK government's crypto taskforce, made up of the FCA, the Bank of England and HM Treasury, begins a consultation early next year with a view to bringing forward regulations.

Don't worry, bitcoin is going to $250,000

And as this is crypto, how about finishing with an outlandish price target (or maybe it isn't). 

Crypto enthusiast and venture capitalist, billionaire Tim Draper, is pencilling in a price of $250,000 by 2022 for bitcoin. 

So what's Draper's justification? 

"Down the road, when we can easily spend, or invest, or do whatever we want with cryptocurrencies – they're frictionless, they cost you less. 

"I mean, just by that alone, just that they cost you less, it's going to be better for people. 

"And so they're going to move to crypto, and they're going to go away from the political currency – they call it fiat."