What Bitcoin Needs In Order To Turn Around
I read with some amusement a news article in which a leading fund manager descibed the recent "correction" in Bitcoin prices as "healthy" and stated that he continued to remain bullish on the cryptocurrency. All I remember thinking was that even the best money managers fall prey to behavioural biases - this was as glorious an example of the "conformation" bias as I've seen in recent times! Talk about hanging on to your pre-existing point of view for dear life!
I, for one, wouldn't call a precipitous 70% plus drop in prices over the course of a quarter to be a "healthy correction". The whole thing reeks of a free fall to me.
I've never been opposed to the concept of a blockchain based, borderless and trust-less system of transacting. However, I've been sceptical about the meteoric price rise that ensued in Bitcoin at the end of 2017, even predicting a fall here.
The beleaguered cryptocurrency, which is trading at sub-7000 levels as I write this, isn't going to resume its spectacular bull run in a hurry; and retail investors are advised to stay away from it - despite the fact that it has lost 70% of its value since its peak. That doesn't necessarily make it a bargain. What's gone down - can go down even more.
Having said that, will there ever be a good time to "invest" into Bitcoin again? From a rational standpoint, it would take the confluence of three factors to make it investment-worthy. As you read this - ask yourself whether you see them happening any time soon.
Merchant Acceptance
Let's not forget that in the end, Bitcoin derives its value from being a useful means of exchanging goods and services. It's not a financial or physical asset class in any sense - it (as the name suggests!) is a currency. And what good is a currency if you can't use it to buy stuff? Although the most recent reports related to merchant acceptance of Bitcoin date back to mid-2017, it only takes a cursory glance around to see how many leading e-tailers or brick & mortar merchants are accepting Bitcoin as a means of payment today. Not too many, to say the least. For Bitcoin's sake, that needs to change, and quickly.
Price Stability
Needless to say - the foundation of a good currency is it's "stability" or solidity. The last thing you'd want is for your currency value relative to other assets and goods to be flying all over the place. For the acceptance of Bitcoin to increase among buyers as well as sellers, its price needs to settle down into the steady rhythm that characterises other currencies. According to this site, the Bitcoin Volatility Index has averaged 5.10% over the past 60 days, even going as high as 7.88% in February this year. For comparisons sake; the volatility of physical gold prices averages around 1.2%, while the volatility of other major currencies hover around the 0.5% mark. In other words - Bitcoin is 5 times as volatile as Gold, and at least 10 times more volatile than most major currencies. Clearly, it needs to stabilise in order for merchant acceptance to gather momentum.
No more bad press, for God's sake!
Citing issues related to consumer protection and market integrity, the Reserve Bank of India (RBI) released a statement last week, stipulating that "regulated entities such as banks are not to do business with any entities that deal in virtual currencies like Bitcoins". Earlier in March, Bitcoin prices fell by a whopping 9% following news that Google, the world's largest online ad provider, plans to ban cryptocurrency advertising. China already banned ICO's (Initial Coin Offerings) late last year. The bad press on Bitcoin has been seemingly relentless over the past quarter, and this has raised serious concerns over its future. In order for the cryptocurrency to become meaningful again, the bad press needs to slow down. Remember that in the absence of fundamental valuation indicators, Bitcoin prices are moving in a purely speculative manner right now - that is, they are reacting to incoming and anticipated news flows.
End Note: The magic trinity of merchant acceptance, price stability and 'no more bad press' doesn't appear to be 'just around the corner' for Bitcoin. Technically speaking, BTC broke down past some very critical support levels back in February, and I wager that its going to find it really difficult to bounce back meaningfully any time soon. Investors are advised to stick with the tried and tested and not attempt to catch the falling knife that is Bitcoin.
