Last year at this time, Bitcoin was on its way to its all-time high in a parabolic move that took the cryptocurrency to an all-time peak at over $19,000 in December. The digital currency asset class had a market cap of over $800 billion on the highs, and it looked like it would be only a matter of days before it moved above the $1 trillion level given the trajectory of the bull market. At the end of November 2017, Bitcoin eclipsed the $10,000 level. What a difference a year can make in markets.
This year, at the end of November, the price of the digital currency was below $4000. After trading in a range between $5800 and $8400 since May, the price broke through the bottom end of the trading range in mid-November. As of November 24, the market cap of all of the cryptocurrencies was at the $125.5 billion level, a decline of over 84 percent.
The price action in Bitcoin highlights the wild and volatile ride in the cryptocurrency that moved from six cents in 2010 to over $19,000 and back down to under $4000 over the past year. Bitcoin had traded in a range for months, but it kept testing the bottom end. While devotees of the digital currency revolution are still calling for much higher values, the market action has taken the price in the opposite direction.
The move to the high late last year caused many late-comers to dip a toe into the burgeoning asset class and purchase Bitcoin and a host of the other over two thousand tokens at prices that are multiples of their current levels.
Meanwhile, Bitcoin was a front-page financial news item on a daily basis back in late 2017 and early 2018, but the bear market put in on the back page. Everyone loves a bull market, but the bearish collapse of digital currencies has made them yesterday’s news. For those of us who trade without any medium or long-term price bias, Bitcoin and its digital cousins have been volatile playgrounds. Even at lower prices, the daily trading ranges have made it possible to grind profits that dwarf the potential of holding a long or short position for an extended period. While a purchase of Bitcoin coming into 2017 at under $1000 is still a very profitable position, the opportunity loss over the past year has been nothing short of brutal.
As Bitcoin traded within its range between $6000 and $8000 for months offered traders plenty of opportunities to buy dips and sell rallies, the break below the low end of the range provided a bonus for trend-followers. Time will tell if the selling continues to take Bitcoin lower to its pre-2017 levels and if the market cap of the asset class is heading for a sub-$100 billion level. However, the daily price ranges in the leader of the digital currencies that still holds more than 50% of the value of the asset class continue to be wide enough to provide the volatility that will attract traders to the market. Volatility is a trader’s paradise, but it can be a nightmare for investors. For the many investors who bought Bitcoin and waited patiently in the hope of another period of wild volatility on the upside, the recent break to the downside is a reminder that markets go both ways and selling can beget more selling in markets when investors finally throw in the towel on a stale and losing position.