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What is Happening to Bitcoin?

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The world of cryptocurrency seems to be taking off. The use of blockchain technology is one of the biggest aspects that came out of the popularization of crypto. Many different industries have started to use blockchain, and the ledger, to reinvent themselves. This can be seen in the commercial real estate market, as well as in financial institutional asset management firms. The price of bitcoin was predicted to skyrocket, but recently is has fallen off “almost 80% from its peak, and trading well-below the support level of $6,000, everyone is wondering where it goes from here.”[1] The most recent issue with Bitcoin is that its price is falling below the cost of mining it. As it became popular and its price fluctuated, and more minters came onto the scene to earn some money. Many estimate the cost of bitcoin’s mining to be close to $5,000 per coin. This number represents the amount that miners get compensated for their time and outlay for providing the work towards the ledger. Clearly it can be seen that the profit is definitely not what it once was at $20,000. The goal of investors became to “mine bitcoin and sell it for a higher price in the futures market for guaranteed arbitrage profits.”[2] As more and more minters entered the market, suddenly the price of bitcoin started to go down close to the actual cost of mining. “Mining at a cost higher than the cost at which you can sell in the futures market destroys value. So, any rational investor — even one who strongly believes the price of bitcoin will rebound — has no incentive to mine if the cost of mining is higher than the future price and is better off buying in the futures market.”[3]

Bitcoin is now at a point that if the cost of mining doesn’t go down, its price will continue to get lower and lower. However, some argue that that is an extreme scenario. Atulya Sarin, professor of finance at Santa Clara University, theorizes that “an improved coin might evolve, or governments might start issuing cryptocurrencies. History is full of examples of innovative companies that went bankrupt, and the “me-too” companies becoming the best investments.”[4] As blockchain technology continues to become more popular in everyday use, will bitcoin truly go extinct? Only time will tell if the words most used cryptocurrency might be replaced by something bigger and better.

[1] Sarin, A. (2018, December). Opinion: Bitcoin is close to becoming worthless. Retrieved from Market Watch https://www.marketwatch.com/story/bitcoin-is-close-to-becoming-worthless-2018-12-03 Retrieved on December 10, 2018

[2] Ib.

[3] Ib.

[4] Ib.

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