After most of the major cryptos peaked in late 2017/early 2018, it has been a rough ride for crypto investors. Now bitcoin prices have sold down to the $6000 USD level, and there are numerous commentators calling the bottom of the bear market. No one knows for sure if this is it, but there are some factors that could drive bitcoin prices even lower over the rest of 2018.
According to multiple credible reports, Mt. Gox is getting ready to return around 160,000 BTC to former investors. All that BTC is worth more than a billion USD at present market rates. The people who have been waiting for the return of their BTC may be in a hurry to cash some of their holdings out, which could create heavy selling pressure in the market.
The price of mining bitcoins has also gone up. In fact, according to some estimates, bitcoin now costs more to mine than it costs to buy in the open market. One may wonder why people are still mining bitcoins, and the answer appears to be one of fixed investment. Large scale mining operations aren’t losing much on their mining operations, and apparently, they are willing to hold on to their bitcoins for the long-term.
Bitcoin may Fall Much Lower
Bitcoin has been a flashpoint in the global media for more than a year. It has doubtless become widely known, but the economics of the Bitcoin platform aren’t well understood. During the run-up in prices last year, major investments were made in bitcoin mining around the world. Now it looks like they may be turning into money losing operations.
Many people have compared bitcoin to physical commodities. Gold is often used as a analogy, but this isn’t a straightforward idea. Bitcoin is a very new invention, and it also requires that miners maintain a network to make it functional. For now, it looks like miners are willing to subsidize bitcoin. Whenever a business model creates no profit, its days are probably numbered.
Mining bitcoin for the long term may or may not end up being a good idea. The entire premise is predicated on rising prices. If a long term rise in bitcoin prices fails to materialize, all those horded bitcoins will have to enter the market at much lower prices.
The Legal Lock-Ups
The people who will be receiving bitcoin from the Mt. Gox stash are sitting on some tasty gains. While crypto prices have been hit hard this year, bitcoin is up well over 1000% from any price paid in 2014. Unlike many of the people who pumped their bitcoins into new ICO’s over the last 18 months, the people who will receive BTC from the Mt. Gox distribution may just want to sell them for fiat. They would be locking in some incredible gains after a long wait.
There has also been movement in another enormous cache of bitcoins, which could add additional selling pressure to the market. Wallets related to the now-defunct Silk Road have been moving their balances around. Unlike the Mt. Gox distribution, there is little word on what might be happening with a huge amount of bitcoin that is presumably being held by the US legal system.
When added together, the bitcoins from Silk Road and Mt. Gox add up to something like 270,000, which is a huge amount of potential selling in an already weak market. There is no way to know if the Silk Road horde will be sold, but a double digit percentage of the bitcoins coming from Mt. Gox will probably be liquidated into the open market.
This Might Not be a Great Time to Buy
It is impossible to argue with the fact that the overall trend in the crypto market as been for lower prices all year. Some feel this is a healthy correction after a massive run up in prices, while others think that the first generation of cryptos will end up being worthless. Regardless of what happens over a long-term time horizon, there are a host of factors that make bitcoin’s price look vulnerable to another leg-lower in price.