Picture: 123RF
Picture: 123RF

Around this time last year there was hardly a braai in SA at which a conversation about bitcoin wasn’t taking place. It was an understandable frenzy. After all, the cryptocurrency had jumped 17-fold in 2017 to just over $19,000.

But, as most investors know, when every man and his dog are talking about something (on the southernmost tip of Africa no less!) it’s a pretty good sign that a bubble is about to burst.

And in 2018 bitcoin went the way of the Dutch tulip.

The price of a single bitcoin hit an all-time high of just over $19,000 in December 2017 and then began plunging. And it kept plunging — by about 80%, to $3,400 a year later.

Click to enlarge.
Click to enlarge.

Wounded bitcoin evangelists will argue that the principle behind bitcoin is solid. It’s a universal world currency that can in theory be used by anyone and moved anywhere, says Wayne McCurrie of FNB Wealth & Investments. "But people weren’t buying it to use it, they were buying it purely for speculation. Nothing only ever goes up. They lost a lot of money."

Shaun Murison, a senior market analyst at IG SA, says there are indications that bitcoin’s price dive was tied to its launch on various global futures exchanges, which allowed institutional players to participate on a larger scale. They could take short positions, which meant "they can hedge underlying portfolios or basically bet on the decline of bitcoin", he says

Ran Neu-Ner, host of CNBC Africa’s Crypto Trader, says the buzz around bitcoin was originally about the underlying blockchain technology. Blockchain, a digital accounting ledger, is still promising, especially as a disruptor of the financial services industry.

"People piled into this technology, as if it would change in one year’s time," Neu-Ner says. "Then the reality set in that it would take a lot longer."

While bitcoin took a dive, other cryptocurrencies, like ethereum, have done even worse. Some cryptocurrencies are down 95% from their all-time highs. "Unfortunately the majority of investors got in at the end of 2017 or beginning of 2018," Neu-Ner says.

The bitcoin bull market happened at a time when the tech was in its infancy, but "the amount of development in the last 12 months is mind-blowing", Neu-Ner says. "Last year people were willing to pay a lot of money for nothing and now they are not prepared to pay for a lot of stuff that’s already been built."

Murison says that while blockchain technology looks like it’s here to stay (in various forms), the fate of cryptocurrencies remains uncertain.

But McCurrie reckons bitcoin will survive. "I think there is a demand for it. But whenever you get a price collapse like that, it will take a hell of a long time for the speculators to come back."

DOWNLOAD FINANCIAL MAIL NEWSMAKER OF THE YEAR

The FM has produced its annual 'Newsmakers of the Year' for 2018, which is available as a digital-only e-edition. Download the FM app for either Android or IOS on either your iPad, phone or computer, and read about who scooped the most headlines, who just missed out, who was responsible for the scandal of the year and the deal of the year.

Plus, read about why populism is on the rise in South Africa, our exclusive investigation into how SA firms are dodging R7bn in taxes by shifting profits offshore, and the top books of the year. Also, your favourite columnists too: Justice Malala, Fred Khumalo, Ann Crotty, Sikonathi Mantshantsha and Rob Rose.

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