Bitcoin is nearly half in value since reaching a record high of almost US$65,000 in April.
The cryptocurrency is now hovering above US$35,000 after it slumped to the lowest in five months a few weeks ago. The pricing now has wiped out most of the gains made this year.
The main reason for this tumble is due to China’s crackdown on the crypto.
“The crackdown by authorities in China on the cryptocurrency industry has spooked the market, causing many traders to sell Bitcoin,” said Bobby Ong, co-founder of crypto tracker site CoinGecko.
Mining operators in China were forced to shut and move their mining operations abroad. With China being the biggest Bitcoin miner by hash rate — a measure of the speed of crypto mining hardware — this has caused Bitcoin to lose a large amount of hashing power too, making the mining process slower.
Even so, experts and industry observers said the current setback faced by Bitcoin was bound to happen and the mining clampdown in China will be good for the crypto community in the long term.
The price correction was due, as the mining processes for the cryptocurrency have already been facing massive scrutiny by the public. Some companies like Tesla had even halted their involvement with the crypto to make a stand.
Tesla’s Elon Musk was concerned with the rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel. Elon had said that Tesla will accept Bitcoin as a payment mode again when crypto miners use clean energy.
Jason Deane, an analyst at Quantum Economics said that while long-term Bitcoiners view this as an extremely positive move for the network as this could mean a cleaner energy future, short-term traders are spooked by the price uncertainty.
The experts predict that Bitcoin is heading for a period of overreaction that will correct itself in due course.
They stressed that it is unlikely Bitcoin will sink to the lows seen in its last bear market in 2018 where the crypto traded at US$3,000-levels.
The lowest Bitcoin could drop to would be at the US$15,000 to US$25,000 range, said Victor Zhang, CEO at Alphawallet.
That’s because there’s a lot more utility, adoption, and diversification in the industry now compared to three years ago.
Bitcoin’s current pricing of around US$30,000 is strong price support, said Bobby.
But Bitcoin prices have faced strong resistance to push above the US$40,000 mark, and for prices to push past that, there needs to be enough momentum and renewed interest, he noted.
“The buying power has noticeably weakened. If support at US$30,000 fails to hold, we may see BTC hitting the next support at US$25,000. There are also indicators to suggest that a price reversal is in order… Notably, the formation of the previous reversal over the past few days has failed.”
Furucombo’s COO Blake Ho added: “It’s important to keep in mind that the crypto market is not rational, and is easily impacted by the emotions, the fear of missing out from a great opportunity, and the fear of being the last one to escape. So the short-term price volatility is usually quite significant.”
“To have a better sleep during the market movement, it’s important to diversify one’s portfolio…(like) allocating some funds to stablecoins for lending yields, or some in promising projects for long-term investment are examples to diversify a portfolio and reduce overall risk,” she suggests.
Digital currencies are underpinned by a vast network of computers around the world.
In the case of Bitcoin, these computers are racing to solve complex math puzzles in order to make transactions go through. This process also generates new Bitcoins, rewarding miners in the cryptocurrency if they’re successful.
According to reports, more than 90 per cent of China’s Bitcoin mining capacity is estimated to be closed. It is thought that between 65 per cent to 75 per cent of all global Bitcoin mining takes place in China.
In the last month or so, Bitcoin’s hashrate has gone down from a record 180.7 million terahashes per second in mid-May to around 116.2 million last week, according to Blockchain.com data.
The experts said that the crackdown is actually a good development for the crypto industry.
“In the short term, there might be a sharp drop in mining power, but this will help make the Bitcoin network more resilient and decentralised. This will help mitigate one of the common criticisms of the past where a majority of Bitcoin hash rate was residing in China,” said Bobby.
Victor said that the setback will only help to improve the crypto industry and its fundamentals.
“China mining has negligible impact because very few countries ban mining. Also, they ban proof of work mining. Proof of stake mining can easily run on an embedded device and it is not power consuming…People should focus on improving the energy source instead of cutting off the usage.”
The crypto experts add that, with more Bitcoin miners going offline due to China’s restrictions, other miners’ share of the network will increase, which might potentially make mining much more lucrative.
“While some countries are banning mining, others are ramping it up. Some states in the USA, such as Texas and Florida, are welcoming miners to migrate,” said Bobby.
As for the outlook for Bitcoin – which still holds the title of the world’s largest cryptocurrency by valuation – Bobby thinks that the Bitcoin market is expected to remain turbulent for now.
“Currently, there is a lack of a clear catalyst for the Bitcoin market… Bitcoin’s outlook will also largely depend on the macroeconomic environment, and statements from the Federal Reserve will play a large role in determining the next movement.”
However, he noted that this is not the first time that China has attempted to ban or restrict the growth of Bitcoin and such setbacks happen at least once every year so far.
And this new setback is bound to make Bitcoin come back stronger.
“It is impossible to ban Bitcoin completely. With every ban announcement, the network grows more resilient, and soon, it may be matured enough to resist being affected by this kind of news,” Bobby said.
Bitcoin also recently locked its first major upgrade in four years, promising additional functionality, privacy, and efficiency.
Bobby said that it’s highly unlikely that another cryptocurrency will replace Bitcoin in the near future. “Bitcoin is still the global crypto reserve currency and is expected to remain so in the foreseeable future.”
Victor agreed, adding that Bitcoin is still the most well-adopted crypto, as seen by countries and companies already adopting it for daily use.
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