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Five reasons Bitcoin could enter a more extreme death spiral

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21.01.2019

Back in December 2017, when its price reached close to US$20,000, Bitcoin looked like it had finally disrupted financial markets with the potential to enter the mainstream. A year later and things looked quite different. Bitcoin is now steadily trading below US$4,000 and has been constantly on a downward ride over the last year, losing more than half of its market capitalisation.

And yet cryptocurrency enthusiasts seem to ignore the fact that Bitcoin could yet enter an even more extreme death spiral. Bitcoin is not the only cryptocurrency whose market capitalisation has been hammered. Sell offs have happened across the board, with the price of major alternative coins such as Ripple and Ethereum falling in the past year.

It is not clear what the catalyst was for these price drops and selling. But what is clear is that cryptocurrency prices struggle to find a floor for a number of reasons. These range from the rising cost of mining, regulatory concerns, market manipulation, speculative trading, sky high power consumption, and the increasing scepticism from both the public and the world’s established financial industry.

1. Rising cost of mining

If its price continues to drop and the mining costs do not fall to the same extent, the incentives to update the public ledger and validate transactions can quickly disappear, threatening the very existence of Bitcoin as a viable payment system.

Bitcoin is dependent on a system of miners that verify transactions and record them on a digital ledger called the blockchain.........

© International Business Times