Earlier this year I made a practice of writing about bitcoin (BTC) each time its price fell by another $1,000 per coin. By that reckoning I’ve missed two deadlines.
When I wrote my last Bitcoin story on Oct. 2 the flagship cryptocurrency was trading at over $6,200. It is trading right around $4,500, and heading lower. That’s precisely where a theory called “Metcalfe’s Law” predicted it would end the year, in a study described by the MIT Technology Review in April.
Metcalfe’s Law holds that the value of a network is proportional to the square of the number of its users. While there are over 22 million bitcoin wallets, fewer than 25% of them are active.
How much further can bitcoin fall? Economist Nouriel Roubini, who predicted the 2008 financial crisis, calls cryptocurrency “the mother of all scams” and considers Bitcoin worthless.
Blockchain Too?
Roubini isn’t just down on cryptocurrencies, but also the underlying blockchain technology, which he calls “a glorified spreadsheet or database.” Keeping each block of data in a blockchain safe, after all, means decrypting it with every access and encrypting it with every save.
This makes blockchain inherently slow, because encryption algorithms must stay ahead of computing’s ability to decrypt for the blockchain to remain secure. Software can make a better lock, but computing is always making better lockpicks.
Blockchain disillusionment is thus accompanying bitcoin’s fall.
Blockchain is not the cure for our voting woes. Blockchain doesn’t automatically make data more reliable. It won’t fix Brexit issues.
Even blockchain advocates now insist you not think of cryptocurrency when you describe the technology. Encryption doesn’t solve the problem of garbage in-garbage out. Encrypt nonsense and you wind up decrypting nonsense.
Hope Springs Eternal
Despite the washout in crypto, there are still people putting money into blockchain.
Autodesk (NASDAQ:ADSK) CEO Andrew Anagnost says blockchain can fight corruption in the construction industry. Hospitals are being told to use blockchain to track drugs through the supply chain. Bankers are being told that blockchain could have prevented a recent Danish bank scandal.
Blockchain advocates like the IOTA Foundation insist they can correct for scaling problems by having users validate both ends of their transactions when they make them. With deals encrypted just once, the scaling problem goes away, according to IOTA. But IOTA tokens, called a screaming buy when they hit 35 cents on Nov. 19, traded at around 31 cents on Nov. 20.
Bakkt, the cryptocurrency market announced by Intercontinental Exchange (NYSE:ICE), owners of the New York Stock Exchange, still has a “coming soon” banner near the bottom of its homepage. A Dec. 12 launch date was publicized Oct. 22, but that document has since been taken down.
The Famous Final Scene?
At its Nov. 20 price of $4,489, the entire Bitcoin market was worth $78 billion. That’s still a lot of money, and near where it traded as recently as October 2017. Goldman Sachs (NYSE:GS) is worth just $74 billion.
But watch out below. Bitcoin futures for November, trading at the Chicago Mercantile Exchange, called BTC, were listed early on Nov. 20 at $4,405, against a previous day’s settlement price of $4,835. The Chicago Board Options Exchange’s XBT prices for December delivery were below $4,200.
So long as other speculative assets like tech stocks are falling, however, it’s hard to call a bottom for bitcoin — or for blockchain.
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 danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story. To follow the value of cryptocurrencies bookmark https://coinmarketcap.com/
