Only 12 months ago, the price of bitcoin was piercing the $10,000 mark, with some particularly bullish investors blithely predicting it would eventually top $100,000. What a difference a year can make: 2018 may go down as the year cryptocurrency mania died.
Bitcoin prices on Monday traded at $3,768, according to CoinDesk. The best-known digital currency has lost 75 percent of its value this year. The overall market value of cryptocurrencies, including once high-flyers such as Ether, Litecoin and XRP, has sunk roughly $670 billion in 2018 alone, data from CoinMarketCap show.
Over the hype
A number of factors have torpedoed cryptocurrencies. The most important is the speculative nature of the investment, which like gold trades on investor sentiment more than underlying business fundamentals.
The hype surrounding bitcoin and other digital currencies that helped fuel their climb into bubble territory is fading now that bitcoin has turned the corner on a decade of existence without replacing cash or other forms of payments. Titans of industry including JPMorgan Chase CEO Jamie Dimon has derided cryptocurrencies as a scam, while Berkshire Hathaway's Warren Buffett has said he doesn't view bitcoin as a genuine investment.
The market for electronic currencies hit a bout of uncertainty earlier this month, when bitcoin fell below $6,000 on worries of a "hard fork" that resulted with the emergence of a bitcoin alternative known as as bitcoin cash. The fallout between two software-development factions over how to upgrade the offshoot effectively led to a computing arms race, causing some investors to bail on digital currencies.
Interest also seems to be waning on the part of cryptocurrency miners, who produce new digital coins by solving complicated mathematical equations. The level of computing activity related to miners -- otherwise known as the hash rate -- has recently begun dropping off, according to published reports.
Regulators crack down
Worries about increased regulation have also hit the digital currency market, fanned by recent fines levied by the Securities and Exchange Commission against two cryptocurrency companies that failed to register their initial coin offerings as securities. The head of the SEC late last year warned investors about
But some remain optimistic even as cryptocurrency prices head south.
Fred Wilson, an early bitcoin investor and partner at Union Square Ventures in New York, in a blog post likened the current state of affairs in digital currency to the dot-com bubble, which he called "a brutal period during which our belief in the internet and its potential was sorely tested."
But tech stocks including Amazon that were hammered after the bubble burst eventually bounced back, with the big paydays not arriving until 2010 and beyond. Wilson thinks that scenario that will likely repeat with crypto assets.
Still, "I think things will get worse before they get better," he wrote, predicting tighter industry scrutiny ahead. "Regulators came after the internet sector in a big way post the bubble, and that seems likely to happen in the crypto sector too."