After a surge in investor interest, Bitcoin’s huge rise could be over. Investors are abandoning Bitcoin to return to the gold market. Why are people are choosing to invest in gold over Bitcoin? And more importantly what does this mean for the cryptocurrency markets?
Bitcoin’s huge rise in value, largely due to the new blockchain technology, prompted many investors to become interested in the cryptocurrency. It rose in value throughout 2017, peaking around $20,000 (a 25-fold increase in its value in 2017). At this time gold had risen by 4%. Since then, however, things have been looking very different for the cryptocurrency. Bitcoin has decreased in value by around 82%, while gold remains strong with a rise of 2.2%. This loss of value has occurred as investors have moved away from the cryptocurrency. Van Eck Associates polled around 4,000 Bitcoin investors and found that in 2019 they would be making their primary investment gold. This situation is occurring throughout the cryptocurrency markets as investors start to realise that, aside from the blockchain, Bitcoin holds no inherent value while a currency like gold does. While this situation is concerning for Bitcoin, what does it mean for the wider cryptocurrency market?
While investors may be abandoning Bitcoin in favour of gold, cryptocurrency generally is still relatively strong. Indonesia, once strongly against cryptocurrency, has decided to accept Bitcoin as a tradable commodity. Additionally, the general community is slowly starting to adopt this technology, with new studies indicating that around one in ten people own a cryptocurrency. Banks like JP Morgan are considering releasing their own coins and many vendors are slowly starting to accept cryptocurrency as a form of payment. However, there is still a long way to go before cryptocurrency becomes mainstream.
While cryptocurrencies are increasingly used and accepted, there are several problems that prevent them from becoming mainstream. For example, problems still exist with the hacking of virtual currencies – reports indicate that hackers were able to steal around $980 million from exchanges in 2018. Additionally, many Initial Coin Offerings (ICOs), designed to allow people to purchase the currency before it gets listed on an exchange, have been shown to be scams. Because cryptocurrencies are untraceable, they have become popular in the hacking community, with many hackers demanding them as payment for unlocking hacked devices. Finally, it will take a long time for regulators to understand and legislate this new technology. With all these complex problems still to be solved, it is unlikely that cryptocurrency will be accepted for mainstream use any time soon, and investors will probably continue to favour traditional investments like gold.
While the future of the any market can’t be predicted with 100% accuracy, Bitcoin has proven to be very unpredictable. However, it is likely that if the current trends continue, Bitcoin may lose even more investors to gold.