The Bitcoin price has been on a wild ride this year. After peaking at the end of 2017, 2018 has been a year of consolidation, and then capitulation as investors have dumped the cryptocurrency in recent weeks.
After bouncing around the $6,000 level for much of 2018, throughout November the price has steadily trended lower and earlier this week printed a low of $3,600, down more than 81% from its all-time high of $19,783.
The big question is, can the price of the cryptocurrency stage a recovery or is its time in the sun over?
I have always made it clear that one of the main risks with Bitcoin is that it has no underlying fundamental value. The value of a single bitcoin is only worth as much as someone else is willing to pay for it, so, if no one is willing to pay $19,783, it is not worth that amount of money — that is the case today.
Still, one of the main draws has always been that the amount of coins in existence is always going to be limited. So if demand is high, then the value of the currency will explode. Of course, the opposite is also true. If everyone suddenly stops using it, then the price will likely fall to zero.
Despite the tremendous amount of attention the cryptocurrency has received over the past 12 months, Bitcoin has struggled to make it into the mainstream, and I believe this is because people are still sceptical that the cryptocurrency is a replacement for traditional currency.
Unfortunately, it seems that the price peaks and troughs have discouraged use, even though they have drawn a tremendous amount of attention to Bitcoin and made a number of people a lot of money.
Lower is better?
Ironically, a lower Bitcoin price could be good for its reputation as it may be the case that more people will start to use the currency to transact. Indeed, one analyst has likened the current price crash to the dotcom bust of the early 2000s. In the late 90s, the tech sector boomed as investors rushed to buy into the internet boom, but the market got ahead of itself, and it all ended in tears. However, the underlying investment themes of the late 90s were not wrong; they were just too early. Even though shares in Amazon plunged 80% when the dotcom bubble burst, it is now one of the world’s most valuable companies.
We could be seeing the same situation with Bitcoin. It may take another 10 years for the world to get used to the technology. If it does, the potential for profit could be huge.
One group of analysts believe that over the next decade, cryptocurrencies could slowly grow to be worth 10% of the total global foreign exchange market, around $500bn of value. If Bitcoin maintains its market share, it could account for 35% of this figure.
As the total number of coins that can ever be produced is only 21m, this indicates each coin could be worth $100,000 in the best-case scenario. If users dump the asset entirely, however, it could also be worth zero. This is too much risk for me and I will stick with shares, but if you’re attracted to this long-term potential, Bitcoin could be a valid speculative investment for your portfolio.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.