Prices of bitcoin (BTC) and other cryptocurrencies are drifting slowly downward while being whipsawed by predictions that bitcoin is going to zero or one million. Okay.
The price of a bitcoin stood at $6,624 early on June 15, after approaching its 2018 low at about $6,300 on June 13. As recently as June 9 the price was $7,600. A statement by the Securities and Exchange Commission (SEC) that bitcoin is not a security drew a relatively muted response from traders.
If it’s not a security, it can’t be regulated like one. But then, just what is bitcoin?
Vanguard chief global economist, Joe Davis, wrote there is a decent chance bitcoin’s value may go to zero because it’s not a store of value. Central banks could destroy it by providing their own “legal tender” digital coins. Or they could manipulate it.
Because cryptocurrency exchanges are not regulated, they have always been suspected of manipulation; and a study by John Griffin, at the University of Texas at Austin School of Finance, claims that it has indeed been manipulated.
Griffin and Ph.D candidate Amin Shams studied the blockchain for Tether, a cryptocurrency whose value is intended to follow the dollar, and found the bitcoin price is “highly correlated” with Tether creation through the Bitfinix exchange.
The Paradise Papers, a giant leak of documents tied to tax avoidance schemes, had previously tied Bitfinix’ founders to the creation of Tether back in 2014.
As Griffin told CNBC, “fraud and manipulation often leave footprints in the data and it’s nice to have blockchain to track things.”
Death by HODL
“Hold on for dear life,” or HODL, is the advice given bitcoin holders throughout the 2017 run-up, and this may have made the market easier to manipulate. If most of an asset’s supplies don’t trade, then the small amount that does trade defines the price.
Speculators who bought into bitcoin before 2017 all paid less than $1,000 for their coins, and those who got in before 2016 paid less than half that. Even at $6,600 per coin, these traders are holding huge profits. Until more of them sell, making the bitcoin market more liquid, it may be impossible to discover bitcoin’s real value. Those who analyze charts on bitcoin trades say the market retains a bearish cast.
It’s the bitcoin bulls, like venture capitalist Tim Draper, who are now being laughed at, not the bears who predict bitcoin’s death.
When Draper recently repeated his prediction that bitcoin will be worth $250,000 by 2022, economist Nouriel Roubini was quick to point out Draper was a big investor in Theranos, the bio unicorn that collapsed amid accusations of fraud. In addition to boosting bitcoin, Draper is also behind a ballot proposal to divide California into three states.
The clear divide between bitcoin bulls like Square Inc. (NASDAQ:SQ) and Twitter Inc. (NASDAQ:TWTR) CEO Jack Dorsey, who call crypto the internet’s “native currency,” and those who predict its demise, has analysts predicting a binary future for it.
They see the open source blockchain developers behind cryptocurrencies engaged in a life-or-death struggle with central banks, with only one side surviving.
So IS Bitcoin Going to Zero?
I have written before that blockchain is the future, that bitcoin and other cryptocurrencies are only demonstrations of what blockchain can do. I continue to believe that. This doesn’t mean bitcoin necessarily becomes worthless. But until more of the market trades it will remain as easy to manipulate as a penny stock or a 19th century faro game.
Cheating by faro dealers was so rampant that the game was forgotten, and movies about the period show men playing poker. The lesson is clear: Avoid dishonest games.
Dana Blankenhorn is a financial and technology journalist. He is the author of a mystery novella involving Bitcoin, The Reluctant Detective Saves the World, available now at the Amazon Kindle store. Write him at [email protected] or follow him on Twitter at @danablankenhorn. As of this writing, he owned no shares in companies mentioned in this story, and no cryptocurrency. To follow the value of cryptocurrencies bookmark https://coinmarketcap.com.