Bitcoin plunged at the end of the week, briefly dipping below $8,000 a coin and sparking worries the cryptocurrency craze is over.
The price recovered to above $8,500 by the afternoon, but more than $100 million in value was wiped away from the cryptocurrency market Friday, as other currencies, including Ethereum and ripple, saw sizable declines.
Analysts claim the selloff may be just beginning.
Nouriel Roubini, a professor of economics at New York University who predicted the 2008 financial crisis, dismissed Bitcoin as the “mother of all bubbles.” He warned the decline in prices was only the beginning and the currency would eventually lose all of its value.
The selloff comes as major social networking companies and governments are moving to crack down on the cryptocurrency market. Facebook announced earlier this week advertisements for cryptocurrencies would be banned on the site.
Cryptocurrency also received a major blow to its legitimacy Thursday when the government of India said it would attempt to stamp out any use of unauthorized currencies.
“The government does not consider cryptocurrencies legal tender or coin and will take all measures to eliminate use of these cryptoassets in financing illegitimate activities or as part of the payment system,” Finance Minister Arun Jaitley said in a statement. China, South Korea, Bangladesh, Bolivia, Ecuador, Kyrgyzstan, Morocco and Nepal are also attempting to prevent their citizens from using cryptocurrencies.
The United States government is also trying to prevent people from using the coins by announcing bitcoins are subject to a capital gains tax every time they are used, treated as property rather than as a currency.
American financial institutions JPMorgan Chase & Co and Bank of America Corp are joining the American government in working to undermine the cryptocurrency market. The financial institutions announced they will no longer let customers use their credit cards to purchase Bitcoin and other cryptocurrencies. JPMorgan Chase & Co CEO Jamie Morgan has previously called cryptocurrency a “fraud,” though he later said he regretted the comments.
A crisis in legitimacy surrounding the cryptocurrency Tether also risks destabilizing the entire market. Unlike many other coins, which are not backed by fiat currency, Tether claims each unit of currency is backed by an American dollar held in reserve. However, there has been recent speculation Tether does not actually posses American currency. The speculation was further fueled when Tether severed ties with a company that was supposed to perform an audit. As many cryptocurrency traders use Tether as a reliable store of value, an utter collapse in legitimacy and value could be disastrous for the entire market.
Tether is now being investigated by the U.S. Commodity Futures Trading Commission. The investigation could reveal if the dramatic rise in Bitcoin prices in late 2017 was centrally orchestrated, essentially just a “pump and dump” scheme on a massive scale.
Making matters worse for those hoping to become “bitcoin millionaires,” the Tokyo-based cryptocurrency exchange Coincheck recently suffered a $530 million dollar theft from hackers.
The crime, which has sparked a full investigation by the Tokyo Metropolitan Police Department, is a severe blow to the cryptocurrency market in Japan, the nation where it has arguably achieved the most success and legitimacy. Bitcoin trade in Japan accounted for almost half of the global market last year, and the Japanese government accepted Bitcoin as legal tender in April 2017.
The heads of some cryptocurrency exchanges are trying to put the best face possible on these developments. Oliver von Landsberg-Sadle, founder of BitcoinBro, dismissed cryptocurrency’s trouble as “growing pains.” He argued increasing regulation by governments will eventually help establishment the legitimacy of such currencies.
“I think the regulatory environment is one of a few factors contributing to this correction, which I see as a very healthy correction,” he told Bloomberg. “It’s a sign that the market’s growing up and it’s recognizing that cryptocurrencies are not a tool for money laundering or illicit use.”
While some cryptocurrency users are panicking, others are sanguine, arguing the dip is an opportunity for investors to buy in at a lower price. Cryptocurrency markets are valued at around $350 billion currently, but were only valued at around $200 billion in November.
And critics who dismissed Bitcoin have been wrong before. WIRED magazine had already written the currency’s obituary in a 2011 article “The Rise and Fall of Bitcoin” after the price declined to below $20. Bitcoin was just above $1,000 only a year ago, meaning even if Bitcoin declined to half its current value, it would still be more than four times as valuable than it was at this time in 2017.