Bitcoin and the other major cryptocurrencies have been trading in a relatively narrow range over recent weeks.
This, however, followed a rollercoaster ride that saw bitcoin climb from $6,750 at the beginning of November to a peak of $19,343 by mid-December. That´s a rise of 186% in a matter of weeks.
The volatility didn´t stop there though, as we then saw a dramatic sell-off, with bitcoin having plunged to $6,914 by early February — a peak-to-trough fall of over 60%.
Little wonder, investors are now scratching their heads as to which direction the crypto is likely to head next.
Over the past few weeks, bitcoin appears to have become stuck in some sort of consolidation phase, trading in a relatively narrow range.
Bitcoin did put on a recovery rally, rising from $6914 on February 5 to trade at well over $11,000 by February 20.
Bitcoin hasn´t been able to make much headway since then, however. On Tuesday, bitcoin was trading at around $10,900.
The key question in many investors´ minds now is whether bitcoin will ever recover to near the $20,000 peak level of December.
And if bitcoin has further to fall, what is the bottom going to look like?
Such questions are especially tricky with something like bitcoin. It´s very difficult to weigh up the cryptocurrency´s prospects in a traditional sense as one would with a fiat currency.
If we we´re talking about the dollar, we could look at the Federal Reserve´s monetary policy or consider other key factors such as the strength of the US economy.
If we think of bitcoin more as an asset than as a traditional currency, it still can´t be valued in the way that a company´s stock can. There´s no dividends or earnings growth to plug into a clever financial equation.
At the same time, bitcoin arguably doesn´t have the track record of commodities such as gold, where long-term supply and demand factors may be properly considered.
Bitcoin is probably best thought of as an alternative, speculative asset, so long-term forecasts are likely to be highly sketchy.
There are some similarities with gold, however, at least conceptually that is. Like gold, there is theoretically a finite supply.
So far, about 12 million bitcoins have been digitally mined. Unless bitcoin´s protocol is somehow altered to create further supply, there are just 9 million more available for mining
Rather than this latter factor, long-term holders of bitcoin should be more worried by potential competition.