Just how low can Bitcoin go? 

Following the most recent tumble in Bitcoin prices below $5,000 and the rapid decline in trading volumes after a multi-month consolidation, investors around the world are all asking themselves this question. After reaching nearly $20,000 per coin a little less than a year ago, the big downturn that has since gripped markets is showing few signs of reversing.

But developments across the blockchain ecosystem and expanding use cases signal that the price of Bitcoin isn't necessarily the only determinant contributing to the big picture of crypto adoption. In fact, it's quite the opposite.

Bearish Development or Surprisingly Bullish?

Depending on whom you ask, the outlook for Bitcoin is slightly bearish or mostly bullish. Although past performance is by no means a guarantee of future prices, asset prices -- especially among cryptocurrencies -- have displayed cyclical patterns in the past that track closely with media coverage and accompanying search engine volumes.

In the past two major boom-and-bust cycles in Bitcoin prices, some of which saw retracements of 80%-90% from lifetime highs, for example, the bull market saw jaw-dropping momentum propel Bitcoin to fresh all-time highs.

In that context, a drop below $4,000 per coin, which would mark an approximate 80% pullback from highs, would not necessarily be the steepest drop experienced by cryptocurrency investors. Eighty percent drops transpired before in 2011 and 2014.

But benchmarking Bitcoin's outlook to historical fluctuations is not an absolute guarantee of reliability. In fact, there are other factors that suggest future price appreciation might be more measured. As such, a prolonged period of weak and even negative returns might prevail as the market continues to mature.

According to Thomas Graham, managing partner at cryptocurrency advisory firm TLDR Global, "We are in a transition period, from a crypto economy dominated by technology players to one built on the adoption of cryptocurrency by traditional institutions. Regulation will play a role as early adopters cash in digital assets and traditional banks, funds and governments buy up positions. The result will be a more stable economy, but some of the magic that has driven the last 10 years of growth will disappear."

Others believe that the latest Bitcoin price slump presents another opportunity. Echoing the above viewpoint, Agada Nameri, general manager at alternative investments platform iCapital, believes that the latest slump might be an excellent opening for institutions to participate. "While 2018 experienced a downturn in market prices, the fundamentals of crypto-assets have continuously improved. In fact, we believe that the currently distressed environment provides an excellent buying opportunity for institutional investors."

Outside Forces at Play

Despite some of crypto's biggest advocates stumping for much higher prices over the near-term, the price of Bitcoin remains solidly in bear market territory. The latest slump below $6,000 per coin -- and then $5,000 -- on substantially higher-than-average volumes is consistent with a consolidation-based breakout. However, characterizing Bitcoin's prices in strictly fiat terms ignores other important developments and its leading role within the cryptocurrency arena.

Several analysts pointed to the recent Bitcoin Cash hard fork as a potential culprit in the price collapse. The fork, which split the Bitcoin Cash community down into BCHABC and BCHSV supporters, has seen power move away from the Bitcoin network in the face-off for hashing domination between the new Bitcoin Cash offshoots. Each party is waging war with the goal of forcibly eliminating one of the forked currencies. This war has sparked an outflow of hashing power from Bitcoin as well, creating stability problems, according to some.

Recent comments from Hongzhuang Lim, CEO of blockchain investment firm XSQ Global, highlighted this phenomenon as a possible driver of insecurity within the ecosystem. Lim noted that "Bitcoin is still head of the table, it has never lost that lead. If it's about value that has receded, the industry needs to recover and put back faith that the value will stabilize. Bitcoin Cash's attack attack on hash power does not give it a good name or faith that it is what it set out to do: A trustless uncontrolled organization."

Is Progress In the Face of Downward Trending Prices A Sign of Maturity?

One area where Bitcoin has in many ways leaped ahead of peers is derivative instruments. Listings on the CME and other major global exchanges have unlocked the important market for short selling Bitcoin. Just like many more mature markets, the ability to short an asset plays a vital role in facilitating overall market function. Nameri reiterates this point, remarking that "short selling accelerates the incorporation of public information into prices. Short sellers play a very important role in the price discovery process."

However, it is still difficult to accomplish this feat, with Lim adding these words of caution: "Short selling [requires the] faith of a market in a certain asset class. So far it is tough. Counter party risk and settlements risks are clearly unresolved issues. Therefore, short sellers should be careful now."

Although the added benefit of short sellers is yet to be quantified, it could ultimately serve as another significant driver for institutional adoption, especially for investors wary of the volatility that has long characterized Bitcoin and its contemporaries. Additionally, the gradually increasing role of institutions in these markets will potentially help pick up the slack left behind by retail traders burned by the latest boom-and-bust cycle.

What We Can Expect in the Future

Will Bitcoin experience the same sort of explosive returns that characterized its latest bull market, or will it slip below $4,000 in the absence of positive, industry-wide catalysts? While both scenarios are possible, a deeper downturn is not out of the question when talking in the context of technical analysis and market fundamentals. But whichever direction the seminal cryptocurrency  goes in, this is by no means an indication that the market is immature. In fact, it is more telling of the opposite scenario, in which Bitcoin remains a market leader.

"Bitcoin has always been the dominant crypto-asset and the digital gold still represents over 50% of the total market capitalization of the asset class," notes Nameri. "Most financial institutions entering the market, such as Fidelity or ICE, focus on Bitcoin because the store-of-value thesis is straight forward. Additionally, Bitcoin is the gateway crypto-asset for investors buying into alt-coins. We therefore expect Bitcoin to remain the dominant asset in the market."

The author holds stock in investment holding company, Leucadia, and is a partner in an emerging technology marketing firm, Notability Partners. He holds no positions in cryptocurrencies nor in any companies that invest in them.

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