It looks like the price of bitcoin recovered slightly over the last two days after it’s dramatic fall at the end of last week.
The quick price recovery, following the announcement that two major Chinese exchanges were freezing bitcoin and litecoin trading for 30 days to implement stricter money laundering regulations, is a strong signal.
This morning bitcoin was trading at right above $1,000 before dropping back into the $900s.
However, over the past few weeks, I’ve noticed that there has also been a lot of noise about bitcoin’s price and the future of cryptocurrencies.
Often these stories are published in media and on sites that cover the crypto finance world. One story said bitcoin will top $10,000 by year’s end. It will be at $25,000 by 2020, said another.
While those stories are fun to read, especially for someone who is just getting into cryptocurrency investing, I’m not sure how helpful they are in the long-term.
I’m of the opinion that it is better to make decisions based on looking at how bitcoin has behaved previously (because this recent spat of high price predictions certainly aren’t the first stories to emerge predicting a bitcoin runaway), than it is to speculate about future value milestones.
Bitcoin’s new found stability makes it a better investment
So, as a recent piece in Bloomberg points out, if we do look at how bitcoin historically performed following an announcement of regulatory action, or issues with exchanges, we see a dramatic price dip and then a slow recovery.
In his piece, “Is bitcoin growing up?”, markets columnist Christopher Langner writes about things were different this time with bitcoin’s quick price rebound over the weekend. He puts the event in some context:
“For all the volatility, though, there are indications that bitcoin is acting more grown up. Go back to December 2013, when the PBOC intervened after the cryptocurrency reached a record high of $1,137. It then dropped 51.4 percent in a week, only to bounce back about 70 percent in the next two days and fall below $600 in another week. Bitcoin then settled into a slow descent to $183 by January 2015.”
For me, this quick adjustment to the action taken by outside authorities really shows bitcoin’s market resilience, and shows that maybe it is mature enough to start behaving as it was originally designed: a decentralized currency outside of the control of any government or financial institution.
So, as I continue down this path of learning more about how cryptocurrencies work, and how I can invest in them, I’ll be looking for more signals that might indicate the health and stability of cryptocurrencies, and not pay as much attention to wild predictions.
If you have any other market health indicators, please let me know.