Cryptocurrency bitcoin slid more than 13 percent on Sunday, as the community of speculators and investors who drove up prices to an all-time high of $19,885 in December are growing increasingly frustrated with its relative failure to shake off reports of manipulation and over-hyped claims of its many benefits.
Bitcoin, the largest and oldest cryptocurrency, is still up more than 30 percent this year, despite the pullback on Sunday. Most other cryptocurrencies tracked by Bloomberg’s Crypto Assets Index also fell on Sunday, with some reaching new lows for the year.
While bitcoin has rebounded from a rocky first few months of the year, when it fell by 80 percent from its December peak, the cryptocurrency community is growing increasingly restive. Speculators who poured money into bitcoin since the beginning of 2018, betting it could supplant traditional fiat currencies, are becoming increasingly dissatisfied. They are afraid that bitcoin may suffer because of over-enthusiasm and greed and mistruths. Bitcoin’s slow and steady climb over the past four years has left its total number of coins in the tens of millions, compared to $20 million for digital cash in 1999, the first year the market existed.
Part of the reason bitcoin has soared to nearly three times its market value is that it has become an accepted alternative to government-backed money. Since it uses blockchain technology, which transfers money securely between computer nodes, it has been claimed by some to be a safer alternative than cash, securities and bonds.
Members of the bitcoin community are particularly sensitive to rumors that are circulating, and doubt that its early developments have given it any inherent value. Speculators believe the cryptocurrency’s most common myth is that it provides a store of value, or liquidity. While bitcoin coins could be bought for cheap in early 2017 and transferred to users at a fixed price after a few days, that process was scrapped last week because its hard-to-master algorithm has proven more difficult than anticipated to develop. Investors are not in the mood to invest millions in a technology that can be easily replicated, which is why the value of bitcoin has plunged over the past year.
Sunday’s price plunge came after a slew of news stories suggested that earlier blockchain efforts failed to live up to their promised benefits. Several outlets pointed to recent reports by the European Central Bank that surfaced earlier this month that said blockchain networks have failed to live up to the hype. The ECB said that their prediction that blockchain would cause chaos or cause massive disruptions did not make sense.
Also last week, Newsweek cited an anonymous source close to the development of blockchain technology and claimed that a cryptocurrency start-up’s long-term goal was to eventually buy and destroy all bitcoin to try to prop up its value, which the source said would take millions of dollars to complete.
Manipulation has been another talking point in the bitcoin community, with many speculators pointing out instances of exactly that. In an article titled “CNBC Looks at How Cryptocurrency Is Being Manipulated,” Jim Cramer wrote that “the best thing to watch on crypto is not cryptocurrencies but where the regulators come down,” and that those regulators are slowing down progress, discouraging research and killing off start-ups.
On Friday, bitcoin was affected by an email hacking, which first affected workers at the Montreal-based cryptocurrency firm BitFury, and who are part of a “hot wallet” used by those more prone to fraud.
Those attacks are more dramatic examples of a larger trend affecting the cryptocurrency community. Economists are increasingly predicting that bitcoin is in for a protracted slide as speculative investors continue to chase its latest high — or wipe out their life savings in its initial plunge.
“It’s like buying lottery tickets,” Cramer concluded, “and watching the numbers go up in smoke.”