Bitcoin Drops to $3,550 Closing Its Week in the Red

Bitcoin, the flagship cryptocurrency, has recently seen its price drop to $3,550 after trading at around $3,650 for a couple of days. This is notably the third time the cryptocurrency’s price drops suddenly this month.

According to CryptoCompare data, bitcoin is down about 3% in the last 24-hour period, as a little over $100 were slashed off its price in about 10 minutes, as volume surged. This was consistent with other sell-offs seen this month, which dragged BTC down from this month’s cuirrent high of about $4,050.

Bitcoin's price performance in the last 30 days

As a result, the cryptocurrency is down about 8.3% in the last two weeks, but is notably still up 10.5% in the last 30 days, as on December 15 it was at its $3,200 low, which some analysts believe may have been the bottom.

What’s behind today’s price drop is unclear, although data has recently suggested that BTC whales – holders with large amounts of the cryptocurrency – have recently started resurfacing. This, as whales who hadn’t touched their holding for between six and two and half years have started moving their funds as of last December.

Per data from Flipside Crypto, wallets active in the last days now hold roughly 60% of the flagship cryptocurrency’s supply. BTC whales can significantly affect the crypto market, as large buy and sell orders can easily see prices shift.

According to CryptoCompare, it would take a sell order of about 5,450 BTC ($18.8 million) for bitcoin’s price to drop 10% on the exchange. On platforms with lower liquidity, the amount is significantly smaller.

Bitcoin's orderbook on Bitfinex

As covered a study conducted y China’s state-run financial publication National Business Daily (NBD) found that about 0.7% of all bitcoin addresses control roughly 86.9% of the cryptocurrency’s circulating supply. This, as 97.2% of BTC wallets have less than 1 bitcoin in them.

As is often the case bitcoin’s slump dragged most altcoins along with it. At press time, Ether, EOS, Bitcoin Cash, and NEO are all down over 7% in the last 24-hour period, while Litecoin, XRP, and ZEC dropped between 3.9% and 4.6%.

TRON’s TRX is down by roughly 9%, while Ethereum Classic, a cryptocurrency that’s recently been hit with a 51% attack., has lost about 7.3% of its value.

Bitwise’s Global Head of Research: ‘Bitcoin Is Like Gold … Just in the 1970s’

Siamak Masnavi

In an article published earlier this week, Matthew Hougan, the Global Head of Research at Bitwise Asset Management, argues that Bitcoin is too volatile to be considered a "store of value", but that is OK because if you want to become wealthy, what you really want is "an emerging store of value". 

Hougan's article for Forbes, which came out on Wednesday (August 21), was addressing the claim made in a Barron's article published on August 16 that questioned the claim that Bitcoin is a safe haven asset.

In particular, Hougan highlighted this paragraph from the Barron's article:

This week certainly would appear to qualify as a good test for an asset’s safe-haven bona fides... There was a market meltdown in Argentina, escalating trade tensions between the U.S. and China, inversion of the Treasury yield curve (viewed as a recession indicator), grim economic news from Germany, and anti-government protests in Hong Kong.

The author of the Barron's article was trying to point that despite all the global turmoil that week, Bitcoin ended the week down 10%.

Hougan says that we should not take from this that Bitcoin is not digital gold. He says that, in fact, Bitcoin is behaving just like gold did in the 1970s. 

According to Hougan, "safe haven assets are supposed to be boring." For example, he points out that gold's annualized rate of return since 1980 is only 2.3% per year, which when adjusted for inflation, comes to -0.7% per year. In other words, it has been basically been "holding its value", which is what you want in a "store of value."

He then says that if, however, "you’re interested in wealth creation," then "history suggests you don’t actually want a store of value; you want an emerging store of value" (i.e. "an asset that has all the characteristics of a store of value, but doesn’t yet have widespread acceptance amongst investors").

Hougan looked at the history of gold and found that the "vast majority of returns gold has enjoyed in the modern era came in the 1970s":

  • 1970s: 1,365% 
  • 1980s: -22% 
  • 1990s: -28% 
  • 2000s: 281%
  • 2010s: 50%

He says:

The 1970s was, of course, when the U.S. abandoned the gold standard. At the time, people didn’t know what to make of gold. Would it succeed as a 'safe haven' asset, untethered from the dollar, or be cast aside as a 'barbarous relic,' as John Maynard Keynes once called it? The result was a period of significant volatility, as the two forces argued back and forth. There were years, like 1975, when gold tumbled in value, falling 25%. And years, like 1979, when it soared, rising 120%

He also says that the daily price volatility of 1970s gold was not that different from Bitcoin's daily price volatility:

There was daily volatility too: In 1973, gold’s price moved more than 3% one out of every ten days! Sounds almost like bitcoin to me.

He then notes that just like the uncertainty about the future of gold back then made it a risky asset to own, it was that risk that "led to gold’s volatility and strong returns," and that as "evidence mounted that gold would in fact continue to serve as a safe haven, returns spiked and more investors made gold a part of their portfolios." Hougan believes that the same scenario is now playing out for Bitcoin.

Hougan considers Bitcoin to be "an emerging store of value" that will keep increasing in value over time as more and more investors "gain greater confidence in bitcoin’s place in the world" and as it gets "easier for institutional investors and financial advisors to buy."

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