Bitcoin sank to a three-month low Friday, and experts remain divided as to whether the biggest digital currency will resume its 12-year rally or continue sliding.
Bitcoin recently traded at $41,565, down 4%, and has dropped 18% in the last month.
One factor hurting the currency is the Federal Reserve’s adoption of a more hawkish monetary policy stance, which has led investors to shy away from risky assets.
Minutes released Wednesday from the Fed’s policy meeting last month said rampant inflation and a red-hot job market could necessitate interest-rate hikes earlier than central bank officials had expected. That assessment led many economists and investors to forecast a rate increase in March.
Another negative factor for bitcoin is the deadly political protests in Kazakhstan that have shut down its Internet service. The country accounts for 18% of the bitcoin network's processing power, according to the Cambridge Centre for Alternative Finance.
Many cryptocurrency miners have fled to Kazakhstan from neighboring China, after the Chinese government banned cryptocurrency mining and transactions in September.
The Kazakhstan Internet outage caused a 12% drop in Bitcoin’s hash rate within a few hours, said Marcus Sotiriou, an analyst at U.K.-based digital asset broker GlobalBlock. The hash rate measures the total computational power being used to process transactions and mine new coins
“The hash rate is not directly correlated to the price of Bitcoin, but it gives an indication of the network’s security, so a fall can spook investors in the short term,” Sotiriou wrote in a commentary Thursday.
Other cryptocurrencies have dropped too Friday. Ether, the second biggest digital currency, recently traded at $3,185, down 6%.
Brent Donnelly, president of Spectra Markets, is bearish on cryptocurrencies. “Crypto is a risky asset, not a safe haven,” he wrote in a commentary Thursday .
“This has become even more true as Wall Street adoption has been an important theme. When the Fed tightens, all risky assets are less fun to own. When hedge funds and asset managers are getting killed on their tech stocks, they sell their crypto.”
But some experts still believe in bitcoin. Despite its ebbs and flows, the cryptocurrency could reach $100,000, as it steadily replaced gold as the asset of choice to store value, according to analysts at Goldman Sachs.
They said this week that bitcoin could grow to constitute 50% of the entire store-of-value market in the next five years. That would put its value at around $100,000 and generate an annualized return of between 17% and 18%, they said.
Some individual investors haven’t lost faith in cryptocurrencies either.
“No one can honestly say when we will recover from this downtrend, but historically speaking we always do eventually,” wrote a participant in Reddit’s CryptoCurrency section who goes by the name Dreampopgazer.
“The investors that stay around, hold good projects and accumulate during the lows are the ones that make it.”