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Bitcoin’s price crash is the sanest thing that could happen

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Bitcoin isn't a smart buy and never has been. It's a gamble that paid off, and might pay off again.

The weekend saw bitcoin and the rest of the cryptocurrency markets take a beating, with bitcoin prices stepping down from about US$6,750 to about $5,800.

In the last 24 hours, it was followed by a sharp upswing bringing bitcoin's 24-hour change at the time of writing to about zero. That immense swing naturally liquidated plenty of margin traders and dropped their money into the exchanges' wallets, and may have been deliberately engineered to do so.

Pictured: Perfectly natural price movements. Source

Old problems, no new solutions

Bitcoin's ongoing drop might be attributed to the same shortcomings it has always grappled with, and a refreshing sign that the markets are starting to grow up and move in line with project fundamentals rather than pure hype.

The speed of lightning

The most obvious old problem is bitcoin's current inability to scale, and bitcoin is gambling everything on the lightning network to solve that problem. As Ethereum founder Vitalik Buterin said, bitcoin has started feeling like an ICO for the lightning network.

But development has been slow. There are growing concerns that the lightning network will simply never work as intended, and even if it does bitcoin will still be a very underwhelming coin for all functional purposes. The payment channels nature of the lightning network means it can only really be practical in a world where bitcoin payments are the norm, while the inherent shortcomings of bitcoin mean it will still be functionally worse than something like Litecoin or Bitcoin Cash with the lightning network. Even if the lightning network started working perfectly tomorrow, it would still be painfully impractical in the real world, simply because bitcoin is not widely used.

For bitcoin to ever become the coin its fans think it already is, bitcoin will need a fully functional lightning network and a lot more real world uptake. Unfortunately the latter will take years, and bitcoin doesn't have years to spare.

Tick tock

Bitcoin has been the currency of the future for almost a decade now, but its time is limited.

At its current pace, bitcoin's energy use is quite obviously unsustainable, and it is only able to tolerate a few more years of increased mining difficulty before it actually starts causing real problems. And if it does, it's not sufficiently decentralised to avoid getting stamped out. There are no plans to solve bitcoin's extraordinary and constantly growing energy use, and eventually it will simply be impossible to ignore.

And in the much longer run, bitcoin's finite economic model simply isn't sustainable. Once all the blocks are mined (estimated to take another 40 to 120 years), bitcoin will fall apart (PDF).

In the absence of any practical advantage over more advanced cryptocurrency, and clear signs that bitcoin is never going to have any, the only reason to buy bitcoin in the last 6 months has been the hope that its prices would be manipulated back up or that the hype train would come around again. But now there's a lot more attention on manipulation, regulators are cracking down and the price changes to drive the hype train probably aren't going to arrive.

Bitcoin's prices have been very consistently running downwards from the all time high, and that shouldn't come as any surprise. If anything, it's a refreshing sign of sanity in the cryptocurrency world. Bitcoin's clock is ticking, its developers have made enough to retire several times over, and all the contrarian indicators and technical analysis in the world can't overcome bitcoin's inherent limitations and turn it into a smart buy.

Ideally, bitcoin would be better than it is. But it's not, so the next best thing would probably be for it to be swiftly ripped out of existence like a bandaid, so its inferiorities don't keep dragging down the rest of the market.

But that's not on the cards either. Instead, cryptocurrency markets are collectively being treated to a slow bleed, courtesy of bitcoin's flaws.

And yet...

Bitcoin is objectively unsustainable, technically inferior to more recent projects and needlessly inefficient. It's probably not going to change either.

But bitcoin has never been about the fundamentals, and it has never been about sane, sensible purchases.

Bitcoin has "died" more than 300 times over the years, and the current downturn isn't even that impressive compared to previous ones. As many have noted, these kinds of prolonged slumps are just business as usual for bitcoin.

Bitcoin might be slumping because its fundamentals are lacking and because it's simply not a smart buy. But bitcoin has never been a smart buy. It's always just been a gamble that paid off, and could still be worth a wager just in case the world is crazy enough for bitcoin to hit the jackpot again.

Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VET, XLM, BTC, NANO

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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