Does Bitcoin's Falling Price Signal The End?

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The fact that Bitcoin’s value against the U.S. Dollar has tumbled dramatically over the past few months has the detractors of the crypto-currency in paroxysms of delight. “See,” they say “this proves what we have said all along, Bitcoin is a fiction and inherently worthless etc., etc…” The problem with that argument is that if we accept it, then there are certain other conclusions that we must inevitably draw. Take a look at these three charts, for example.

All are 6 month charts. The first comes from Blockchain Info and is Bitcoin against the U. S. Dollar (BTC/USD), the second is the British Pound against the Dollar (GBP/USD or Cable in forex speak) from, and the third, from, is the price of a barrel of West Texas Intermediate (WTI) oil. Surely, if the first tells us that Bitcoin is worthless, then shouldn’t we conclude that Sterling and oil are also doomed?

Obviously, the scale of each chart is different and BTC/USD from peak to trough represents a drop of around 50 percent, rather than, say, around half of that for oil. It isn’t an exact like-for-like comparison, but considering past volatility the relative losses in Dollar terms are not way out of whack. The point is that something losing value in terms of the U.S. dollar over the last few months is, at least in part, due to general Dollar strength. It may well indicate that Bitcoin, just like Sterling and oil, were somewhat overvalued a few months ago, but to conclude from that that any one of those things is somehow in its death throes is, to say the least, a bit of a stretch.

If you maintain that all currencies should be government issued and controlled, or that a virtual payment system has no place in the world’s future, then, while I and others might disagree, you are at least arguing an opinion. To see price fluctuations as indicative of anything other than relative value, however, is simply not valid.

Of more worry in an existential sense would be if Bitcoin’s decline against the Dollar were the result of mass indifference. Evidence would suggest, however, that that is not the case. The number of retailers who accept Bitcoin continues to grow and the number of transactions per day continues on a gentle upward slope. Interest in Bitcoin as a payment method and a store of wealth not subject to the inflationary whims of government remains high. As long as that remains the case a fall in the relative value, while of concern to long term investors, is perfectly normal in a strong USD environment.

When Bitcoin was changing hands at over 1,000 USD some saw that as evidence that the global system of fiat currency was about to collapse. They were drawing a conclusion based on their biases and were wrong. The same can now be said of those who see this weakness as evidence of the end of Bitcoin.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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