It’s been a rough start to the year for cryptocurrencies.
Karen Bleier/Getty ImagesBitcoin’s postholiday hangover kept going this week, but the cryptocurrency is likely to weather yet another downturn.
That’s the general takeaway from some experts who follow the digital currency. They said bitcoin should remain extremely volatile as it continues to develop.
“You’ll see huge moves up, huge moves down. That’s just the way it moves,” said David Johnson, CEO of Latium, a website that pays people in cryptocurrencies for completing crowdsourced tasks.
Early Friday, bitcoin saw its price sink below $8,000 for the first time since November, dropping about 60 percent from its all-time high of nearly $20,000 a month and a half ago, according to the research site CoinDesk. Other major cryptocurrencies such as Ethereum and Ripple have also declined in recent weeks.
The drop quickly changed the mood around cryptocurrencies, with the hype and excitement that surrounded them during a run-up this holiday season giving way to uncertainty about their future as they started to tank. These digital currencies are also likely being dragged down by tougher regulatory scrutiny from governments in China, India and South Korea, which have raised concerns about money laundering, tax evasion and heavy speculation using cryptocurrencies.
Earlier this week, too, Facebook banned ads for cryptocurrencies and initial coin offerings, saying such ads are “frequently associated with misleading or deceptive promotional practices.”
Despite the current headaches, cryptocurrencies should be here to stay, thanks to their inherent value as an alternative to government-run monies, said Karthik Kannan, a management professor at Purdue University’s Krannert School of Management. Even after the novelty of bitcoin wears off, he said, its ability to disrupt banking and finance will continue.
“We had similar stories when the dot-com bubble happened,” Kannan added. “The bubble disappeared but the e-commerce didn’t disappear.”
Additional safety measures that cut down on future breaches, and more infrastructural supports for bitcoin trading, such as derivatives, should help reduce volatility in the future, these experts said.
“It’s a very immature market; it’s still young. There’s still a lot of market development that needs to happen to make it less volatile,” said Johnson, who added that low trading volumes and a large number of hobbyist traders in bitcoin have also resulted in wild price swings.
Bitcoin is still up sharply from the beginning of last year, when it was trading at $1,000. That could mean plenty of bitcoin enthusiasts still see a lot of value in the digital currency, or that it still has a long way down to go.
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