Bitcoin is proving that what goes up must come down, dropping 11% since Monday. Still, the digital currency has soared 137% year to date amid investor mania.
But that mania can quickly turn from positive to negative, as this week’s move shows. In another example, the price of bitcoin plunged 83% from December 2017 to December 2018.
The digital currency recently traded at $16,891.94, down 0.25%.
Bitcoin bulls attribute this week’s slide to profit-taking and see the currency rebounding quickly. Many say bitcoin is now a store of value, offering a hedge against any decline in the dollar.
But it’s unclear what makes bitcoin a store of value. It’s barely used in actual commerce, and its continued volatility makes it less likely that will happen. What bitcoin appears to be is a vehicle for speculation.
People seem to be buying it because it looks like they can make money, and many have done so. But it stands to reason that like any other speculative vehicle, it will have periods of strength and periods of weakness.
Just look at gold, another supposed store of value. After plunging from a high of $800 an ounce in 1980, it didn’t regain that level for 27 years. And after reaching a record peak of $1,820 in 2011, the precious metal didn’t see that level again until this year.
In addition, gold is an asset that has a lot more historical legitimacy than bitcoin. A defining characteristic of major currencies is stability. They generally fluctuate much less than stocks. Bitcoin doesn’t look ready to join that crowd anytime soon.