Is there life after bitcoin?

In late 2017, cryptocurrencies were one of the most-discussed topics at many festive season dinner parties. Tales of visionaries who’d racked up fortunes on the back of bitcoin’s meteoric rise stoked the euphoria. And, they said, there was more easy money to be made.

As it turns out, the bubble was already preparing to burst that December. Initially, crypto advocates claimed it was just a “correction”, and a chance to buy more. But as 2018 wore on and prices fell further, enthusiasm waned.

Bitcoin, the flagship cryptocurrency, has now lost more than three-quarters of its value since its high of R264,825 on local exchange Luno in December 2017. Today, it is trading at R58,452. According to CoinMarketCap.com, the combined market capitalisation of all cryptocurrencies fell from $573bn to $129bn in 2018.

There are numerous reasons: panic selling, tighter regulations and several high-profile hacks among them. But either way, those who bought at the top have felt the pain, and those who eschewed the frenzy must be feeling pretty smug.

“The bitcoin crash of 2018 has been the biggest economic bubble of our time, surpassing the famous dot-com bubble,” says Barry Dumas, market analyst at Purple Group’s GT247.com.

Even now, Dumas says, “more and more investors are betting against cryptocurrencies” thanks to the introduction of derivative instruments that let them take short positions. “That doesn’t necessarily mean that these clients do not hold bitcoin as a long-term investment, but rather that investors are capitalising on the downward momentum in the short term,” he says.

But FNB Wealth & Investments’ Wayne McCurrie points out that bitcoin has always been subject to wild price fluctuations, and has plunged more than 50% a number of times.

To put things into perspective, the coin is still worth nearly five times what it was two years ago. Bitcoin is likely to stick around, says McCurrie, though many “copycat” cryptocurrencies will fall by the wayside.

Nevertheless, he says, “there is really only one rule for investing: diversify”.

Dumas says the fledgling crypto market faces another uncertain year. “One fundamental challenge is the cost factor of mining and the power usage it takes to mine bitcoin,” he adds.

Reports say that more than 100,000 cryptocurrency miners (those who verify transactions and add them to the digital ledger) have shut down, and over a million servers have been unplugged since September. In general, bitcoin mining is said to be profitable only when prices are above $4,500. On average, it takes 1,300 days and nearly 40,000kW of electricity to mine one bitcoin, says Dumas.