It’s been a rollercoaster ride for Bitcoin investors over the past few years.
The digital currency surged to nearly $20,000 in December 2017 before plunging more than 80% over the next 12 months. It then rebounded in 2019, but has once again lost ground in 2020.
What’s behind Bitcoin’s latest slump? And is the cryptocurrency likely to fall further in the months ahead?
Here’s a look at some of the factors that are weighing on Bitcoin.
The coronavirus pandemic has roiled financial markets around the world and sent investors fleeing to safe-haven assets like gold. Bitcoin, which is often touted as a digital version of gold, has failed to benefit from this flight to safety.
Instead, the cryptocurrency has been weighed down by concerns that it could be used to finance illegal activity. In early October, the U.
S. Department of Justice announced that it had seized more than $1 billion worth of Bitcoin that was linked to the Silk Road online marketplace, which was used for illegal drug sales.
This isn’t the first time that Bitcoin has been tied to criminal activity. The digital currency was also used on Silk Road’s successor, Alphabay, and on other dark web marketplaces.
These associations have made some investors leery of buying Bitcoin.
In addition, Bitcoin mining – the process of creating new Bitcoins – requires a lot of energy, which is costly and bad for the environment. The Cambridge Center for Alternative Finance estimates that Bitcoin mining consumed about as much electricity in mid-2020 as all of Argentina.
This is likely to become even more of a problem if Bitcoin usage grows significantly in coming years.
Finally, there’s been a proliferation of so-called “altcoins” in recent years – cryptocurrencies other than Bitcoin that have gained popularity with investors. These include Ethereum, Litecoin and XRP (the native token of Ripple’s payments network).
With more options available, some investors may be less inclined to put their money into Bitcoin.
All of these factors suggest that Bitcoin could fall further in the months ahead. However, it’s important to remember that the cryptocurrency is still up sharply from its lows just a few years ago, and it remains popular with some investors despite its recent struggles.
So while a further decline is certainly possible, it’s far from certain.