Monday, Dec. 17, will mark one year since the price of bitcoin — the best-known cryptocurrency — hit an all-time high just shy of $20,000. For bulls who bought the hype, it’s been a long — and painful — ride down.
At the time, the digital currency was up more than 1,000% for 2017, both the CME Group and Cboe had just launched bitcoin futures contracts, and everyone seemed to be making money as talk about the previously obscure crypto market made its way into the mainstream media.
In retrospect, it appeared all too easy: Bitcoin rose 11 of the 12 weeks leading up to the Dec. 17 peak and logged gains in eight of the last nine months in 2017. Day traders were millionaires, analysts were predicting further drastic price increases and investors jumped on what looked like an endless gravy train.
According to Crypto Fund Research, 85 crypto-related funds launched in the first three months of 2018, and at Jan. 1 2018, there was $5.8 billion of assets under management in the crypto hedge fund industry, compared with $675 million a year earlier.
But, in the blink of an eye, the tide turned: A January correction soon turned into a collapse and then turned into what was dubbed a prolonged crypto winter — a season that has yet to end.
From their peaks, most major coins lost more than 80%. Bitcoin BTCUSD, -2.17% has shed as much as 85%. Ether, ETHUSD, -1.58% the popular currency that runs on the ethereum blockchain, fell as much as 95%, losing its title of the second-largest digital currency.
Crypto, % Below all-time high…
Bitcoin Gold: -98%
Bitcoin Cash: -98%
— Charlie Bilello (@charliebilello) December 8, 2018
As the selloff deepened, bitcoin pundits dug their heels in, failing to cave to a bear market that wiped as much as $700 billion off the total value of all cryptocurrencies.
There were warnings, of course. JPMorgan Chase & Co. JPM, -0.99% Chief Executive Jamie Dimon called bitcoin a “fraud” in September 2017, though he later said he regretted using the word. Billionaire investor Warren Buffett called bitcoin mania a “mirage” and predicted it would “come to a bad ending.” And they weren’t alone.
2018: The year of bitcoin predictions
After a stellar call in late 2016, when Kay Van-Petersen of Saxo Bank said bitcoin would rise to $2,000 in 2017 — a feat achieved five months into the year — the analyst told CNBC in January that bitcoin could trade as high as $100,000 in 2018.
“First off, you could argue we have had a proper correction in bitcoin, it has had a 50% pullback at one point, which is healthy. But we have still not seen the full effect of the futures contracts,” he told CNBC.
On the heels of Van-Petersen, venture capital guru Tim Draper, who famously purchased around 30,000 bitcoins in 2014 from the Silk Road bust, said the price of a single bitcoin could trade as high as $250,000. Draper can say he has time on his side, saying it would take until 2022 for bitcoin to reach the quarter of a million milestone.
Former Goldman Sachs partner and hedge-fund manager Mike Novogratz was another who called the run-up in digital currencies, saying in 2017 that bitcoin would reach $10,000. However, after riding the wave up, Novogratz said on Sept. 13, with bitcoin trading around $6,300, that he believes the low for 2018 was in and a week later he told CNBC that he sees a potential 30% rally by the end of the year.
Another who thought bitcoin would base around $6,000 to $6,500 was Dan Morehead, chief executive and co-chief investment officer at Pantera Capital Management. In April he said widespread adoption would propel bitcoin to a new high.
“I rarely have such strong conviction on timing. A wall of institutional money will drive the markets much higher,” Morehead said in the company’s April newsletter.
Elsewhere, perennial bitcoin bull Tom Lee said in July that he’d rather own bitcoin than equities, putting a price target of $25,000 by the end of the year. As the cryptocurrency continued to stumble, Lee dropped his price target to $15,000 in November.
Since Lee’s July 5 call, bitcoin has fallen 48% compared with the S&P 500, SPX, -1.97% which has fallen 3.1%, the Dow Jones Industrial Average, DJIA, -2.15% which has gained 0.9% and the Nasdaq Composite, COMP, -2.09% which has lost 6.8%.
The head of New York-based Fundstrat Global Advisors said bitcoin’s network value, coupled with a supply model that uses break-even mining costs to value bitcoin puts the fair value of the largest cryptocurrency between $13,800 and $14,800.
What went so wrong
Now, 12 months since the peak and two weeks out from the end of the year, many analysts are in a reflective mood. Lee said a number of factors lead to the underperformance of the broader crypto market, including regulatory hurdles, industry disagreements and a generally risk-averse, global market environment.
“Global markets have seen massive de-risking, and this resulted in further selling pressure on bitcoin. Consider that some holders of bitcoin have large exposure to FANG or equities (Silicon Valley entrepreneurs, for instance),” wrote Lee, in a note to clients. FANG is an acronym referring to previously highflying, large-cap tech shares, including Facebook Inc. FB, -0.41% Apple Inc. AAPL, -2.79% Netflix Inc. NFLX, -2.17% and Google parent Alphabet Inc. GOOG, -1.78%GOOGL, -2.04%
Lee added the Bitcoin Cash hard fork and the floundering initial coin offering, or ICO, market to his list of factors that weighed on cryptocurrencies in 2018.
Investment in ICOs stalled in the second half of 2018 as a number of regulatory rulings turned investors off the alternative method of capital raising. In November, the Securities and Exchange Commission slapped two companies with fines for launching unregistered coin offerings. The ruling was the first nonfraudulent case, meaning the companies could continue operations once they registers the tokens as securities.
A hard fork occurs when developers and miners no longer agree on a proposed change to the software, despite operating on the same blockchain. Once the fork takes place, one group of so-called nodes — computers that are connected to the network and are part of the transaction confirmation process — will upgrade to the new software and the other will operate on the old rules, creating two separate blockchains and digital currencies.
For Novogratz, he agreed the contentious hard fork played a role in bitcoin’s underperformance.
“It felt like the selling was finished. But then Bitcoin Cash decided to fork again,” Novogratz told Bloomberg in Dec. 11 interview. “At the same time the SEC came out and sanctioned a few ICOs and said, ‘Oh, by the way, your investors can sue for damages.’ That scared the heck out of a lot of people.”
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