In less than one year, the price of Bitcoin has slumped to around US$4,000, off nearly 80 percent from the peak of more than US$20,000 in 2017.
Created in 2009, Bitcoin was the first digital currency. However, due to its relatively outdated technology, a Bitcoin block has a capacity limit of 1MB.
That limit means every transaction may take up to several dozen minutes, which has increased the transaction costs and threat of the Bitcoins being stolen by hackers.
New cryptocurrencies such as Ripple, Ether soon emerged to address the capacity limit issue. And their share of the cryptocurrency market has grown notably over the years.
Bitcoin, still the largest, currently has a total market value of US$80.3 billion, while the market value of Ripple and Ether has grown to US$18.1 billion and US$14.2 billion respectively.
Meanwhile, a group of developers wanting to increase Bitcoin’s block size limit prepared a code change and created Bitocin Cash or BCH, which is regarded as a spin-off of Bitcoin, with a bigger a block size limit of 8MB.
The spinoff appears harmless initially. But then came more versions of Bitcoin, with yet bigger block size limit.
That has opened the Pandora box. There are new BCH with 32MB and 128 MB versions. That has diluted the existing Bitcoin and triggered a hash war among different digital currencies.
Bitcoin was once a hot investment mainly because it was touted as a digital asset with limited supply, unlike traditional currencies like US dollar, euro that can be increased easily when governments decide to ease monetary policy.
With all these new coins and versions of Bitcoins, and fears of ever more advanced cryptocurrencies that could become available along with technological advance, Bitcoin and most other crytocurrency prices inevitably slumped.
Currently, the break-even cost of Bitcoin mining is around US$6,000. The price crash has prompted a halt in operations at many mining facilities.
Chipmaker Nvidia, a major beneficiary of the crypto-boom last year, has seen its share price slump 25 percent within two days, with US$30 billion shaved off its market value.
This article appeared in the Hong Kong Economic Journal on Nov 22
Translation by Julie Zhu
[Chinese version 中文版]
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