Battered bitcoin fans keep the faith, despite reality of 70% plunge in value
For Tone Vays and other bitcoin investors, 2017 brought memorable returns topping 1,500 percent. A year later, the market has reversed, plunging nearly 70 percent since reaching an all-time high approaching $20,000 in December 2017. It's now around $6,620, according to Coindesk.
Though Vays continues to believe in bitcoin and other cryptocurrencies, he expects "more pain to come" because speculators, who last year pushed prices up, will continue hammering them down in 2018.
"It will take time for people to digest the fact that bitcoin isn't worth as much," said Vays, who hosts a podcast about the cryptocurrency market. He added that he had expected the price decline.
Bitcoin, which was first proposed by a person or persons who used the pseudonym Satoshi Nakamoto in 2009, has gained popularity among some investors as an alternative to conventional, or "fiat," currency. The digital version is "mined" electronically by solving complicated mathematical equations. Prices for bitcoin and its many rivals have proven to be rather volatile.
Some of the leading luminaries in the investing world, including Warren Buffett, have urged investors to avoid cryptocurrency. The Oracle of Omaha bluntly likened bitcoin to "rat poison squared." A scathing assessment from The Bank for International Settlements, which serves as a central bank to the world's central banks, recently noted that cryptocurrencies aren't scalable, lack security and have no intrinsic value.
Even Jordan Belfort, a convicted felon whose exploits in cheating investors were the basis for the film "Wolf of Wall Street" starring Leonardo DiCaprio, urged people to "get out [of bitcoin] if you don't want to lose all your money."
Vays however, still has the "majority" of his bitcoin because if were to sell he would be hit with taxes. Moreover, he expects bitcoin to be worth $20,000 in five to six years and doesn't want to feed into the current market speculation that's driving prices down.
"I also had no idea how far it would go down," Vays said. "Even though I had 80 percent confidence that we were going to fall all the way down, I have 100 percent confidence that we are going to go all the way back up. … I was not in a rush to sell because eventually it will turn around and will be very difficult to buy."
Other bitcoin fans also see better times ahead and claim that talk of the market's decline is overblown.
"People who got in near the top may have gotten burned, but you have to remember that bitcoin is still nearly 7 times as valuable today as it was at the beginning of 2017," wrote Coin IRA founder Trevor Gerszt, who provided cryptocurrency-based retirement accounts, in an email to MoneyWatch. "How many other assets can claim that kind of growth in only 18 months?"
Venture capitalist firm Andreessen Horowitz, an early backer of Facebook (FB), Twitter (TWTR) and Airbnb among others, last week announced the launch of a $300 million venture fund called a16z crypto that will invest in crypto companies and protocols. It can hold investments for more than 10 years.
"We are long-term, patient investors," the firm said. "We've been investing in crypto assets for 5+ years. We've never sold any of those investments, and don't plan to any time soon."
But Mohamed El-Erian of Allianz Capital is taking a cautious approach to bitcoin and other cryptocurrencies, noting in a recent CNBC interview that the underlying blockchain technology has some long-term potential. Bitcoin itself could be a buy, he said, if it falls below $5,000.