Why Bitcoin is likely doomed to fail
The cryptocurrencies’ market cap fell by $60 billion in less than a week, after another Bitcoin mini-crash gave start to widespread rout.
The rapid liquidation of cryptocurrency portfolios has resulted in other major assets, such as ETH, LTC and XRP, falling in price to the lowest level since December 2017. At the time it was suggested that behind the world’s bet on revolutionary technologies there was only a cascade of speculative transactions and hunt for easy profit.
Last night, the BTC fell to $ 4,237, its lowest level in the last 13 months, then stabilized at about $ 4,500 on Wednesday. From the point of view of basic technical analysis, the main support for Bitcoin can be found at the weekly 200-moving average (200-sma) at the level of $ 3130.
The level of $ 3,130 may be the last big fortress for bulls to fight back. But if it fails, it will become clear that the speculative bubble has passed into the terminal stage and long-term shorts will likely be the major play.
Low BTC volatility, prompt calls on the dips and various rally attempts have created the impression for a stable market for a relatively long time, however, the looming storm was indicated by the market capitalization that does not include Bitcoin.
Since May, the market has steadily lost in volume, and over the past two months, the pace has slowed down, which has restrained gloomy sentiments. In addition, large stock exchanges such as Binance cut off the connection with fiat currencies, therefore Bitcoin served as a kind of internal fiat (protective asset) and at times of rout of other digital assets it naturally strengthened in price.
It’s funny, but such a restriction created a transactional demand for bitcoin (demand as means of payment), while other cryptocurrencies performed like goods in our ordinary economy. The only problem is that over time awareness has grown that most of them have neither consumer nor investment value. But the idea or the forced measure to close the cryptocurrency system and make it a real and independent digital economy, with its goods, extended its life for some time.
Interestingly, despite the stabilization of the price of Bitcoin in the summer at around $ 6,000, the complexity of mining continued to grow. There is evidenced that the hashrate began to decline only in October of this year. In other words, mining efforts increased, while increasing the natural supply of Bitcoin, albeit at a falling rate.
Since mining has operational costs (electricity, air conditioning, etc.), with BTC price stuck in tight ranges and increasing complexity, mining should remain profitable until marginal revenue equals marginal costs. That is, until the moment when the next mined and sold bitcoin will not cover the costs of it.
As envisioned by Satoshi, the mining infrastructure of the miners was to become the technological basis for processing the transactions for which the miners would charge a commission. But the only miscalculation was that Bitcoin won’t be widely adopted as a means of payment, so mining remained mostly speculative all this time and the share of revenue from commissions was low, except for the really active period last year (again speculative).
As I said above, the difficulty of mining is directly proportional to the computational efforts (and electricity!) spent on it. With the fall of the difficulty, the natural increase in supply will slow down, easing the pressure on prices. This is one of the few positive factors. But following the simple reasoning above, the remaining capacity will continue to supply new BTC to the market, trying to pay off or take the last profit.
A speculative supply among other factors will likely lead to the next downward spike in demand. The next portion of capacity will go to junk, which does not pay for itself. Thus, the system sets itself to self-destruction, miners in the struggle for a shrinking profit rate lose the infrastructure necessary for processing transactions. And new ones will likely not be built, while old ones could be sold first.
And here is the sad evidence of what is happening:
Please note that this material is provided for informational purposes only and should not be considered as investment advice. Trading in the financial markets is very risky.