It’s no secret that 2018 has been a rough year for the cryptocurrency. The market reached an all-time high in the December-January timeframe and then tumbled over the course of February to a trough in which it’s still wallowing. This has affected cryptocurrencies across the board, and Bitcoin is no exception.
Despite some fitful starts in March and May, Bitcoin is still sitting at well under half of its December BTC to USD value. While it is up significantly year on year, Bitcoin’s doldrums have been enough to drive many weak hands from the market. Worse, Bitcoin’s lack of success in 2018 after an awesome end to 2017 has introduced doubts that the cryptocurrency market might just have been no more than a bubble after all.
If you’re spending every waking moment hitting “refresh” on your favorite exchange and checking your portfolio every hour on the hour, stop immediately. Things are going to get better, but it may take some time. Let’s just take the short-term view right now and get some perspective on why Bitcoin is still a great investment and when it will return to its former pricing strength.
Clarity Is Coming
Part of the challenge facing cryptocurrency in early 2018 was the absolute lack of clarity surrounding U.S. tax law. Many investors thought that the so-called like-kind exchange rule – a mainstay of real estate investing – would apply to cryptocurrency. This would effectively free them from the tax burden incurred by trading one cryptocurrency for another. Unfortunately, the U.S. struck down this loophole and put millions of crypto users on the hook for unexpected taxes. Whether they ever get paid is a matter of enforcement and willpower, but the Internal Revenue Service clarified the rules, definitively.
That doesn’t seem like a net positive, but it shows that the U.S. government recognizes that cryptocurrency is here to stay. The IRS is one of the most conservative branches of the U.S. government, and its tacit recognition of cryptocurrency – even if it comes in the form of stricter tax laws – means the government is ready to take it seriously. This has already had knock-on effects. The U.S. Securities and Exchange Commission is hearing cryptocurrency cases on a case-by-case basis to figure out whether they are securities, and other government regulatory agencies are cracking down on alleged trade manipulation.
This kind of government attention may annoy crypto purists, but it’s a godsend for the institutional investor community. Those big-money institutions need the relative stability of a regulated market before they commit millions of dollars in their care to any new financial project. Government attention in the U.S. and even in countries as diverse as Korea and Iceland means that the Wild West aspect of cryptocurrency might be going away, but giant sums of institutional money will replace it. This will have the effect of reducing the volatility in the market overall and attracting even more institutional money. At the end of the day, prices rise, prices crystallize, and everyone lives happily ever after.
The Tech Is Getting Better
Bitcoin’s developers are continuously tightening its code and improving its speed. In the midst of a sea of less-than-stellar alternative coins, a few tech standouts are gaining a foothold. IOTA hopes to leapfrog current technology and become compatible with a quantum computer-driven internet. Holographic blockchain technology promises improvements to traditional blockchain services as revolutionary as the blockchain itself was to central processing.
You’re probably familiar with Moore’s Law. Without getting too techy, Moore’s Law predicts that processing speed doubles and prices fall by half about every 18 months. What that means for cryptocurrency is the tech gets better and better each day. It’s important to remember that Bitcoin was only launched in 2008. The market is still in its infancy. As technology improves, adoption rates should follow suit as more applications open up.
The Market Is Maturing
With over 1,600 cryptocurrencies to choose from, the market looks bloated and overcrowded. There is a lot of overlap and, quite frankly, many coins that boil down to complicated pyramid schemes. However, the rough investment year of 2018 is slowly but surely shaking out the chumps and clearing a path for the market as a whole. Investors are growing smarter, white papers are getting better, and the market, on the whole, is displaying more maturity.
This is tied tangentially to the increasing regulatory scrutiny, but it’s also just a matter of time. The longer the market endures, and the more bumps and dips it handles, the more sophisticated it becomes. One sign of this is the growing prominence of Bitcoin derivatives. A set of financial tools vital to the traditional securities markets, derivatives give seasoned traders the ability to create leverage and build more advanced cryptocurrency portfolios. This growing market maturity is likely to shake out obvious scam coins rather quickly, and it gives cryptocurrency professionals a bigger toolkit to manipulate. Advanced markets are more resilient and more useful, and cryptocurrency shows every sign of heading in that direction.
So – When?
If you were hoping for a firm date, we’re sorry to disappoint you. There’s no clear-cut answer as to when Bitcoin will again hit the $20,000 mark. But really, that’s not the end goal. The end goal is a diverse and thriving market where value can be securely stored. The market is building up to that point. It might not be in a matter of weeks or even months – but it’s pretty much a given that cryptocurrency will continue to be a powerful market force in the years to come.
- Bitcoin is getting increased regulatory attention, taming an often volatile and sometimes hostile market.
- Tech is improving across the board.
- The market’s sophistication is growing every day because of more advanced financial products.
You can go back to checking your portfolio a few times an hour if you really want. However, that time might better be spent checking long-range forecasts and reading up on the latest tech improvements. Bitcoin promises the future. The tradeoff is you might have to wait a little while for that future to arrive.
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