Bitcoin Cash’s 180% Bounce Looks Like a Dead Cat

(Bloomberg Opinion) -- There’s a great website that tracks the number of times obituaries have been written on Bitcoin (this column will be added to them). The expected punchline is no doubt that the crypto-currency will outlive all the people writing about it. That’s possible. After hitting a year’s low of about $3,143, down about 80 percent from January highs, Bitcoin has risen 27 percent this week. Short-sellers are closing their positions, while fans smell fresh opportunity.

Even more eye-watering market moves are happening elsewhere in the digital currency’s ecosystem. Bitcoin Cash, a spin-off intended to be more usable as a payments mechanism, has almost tripled this week from about $80 to $225. That this is happening at the same time as a U.S. stock-market selloff will no doubt warm the hearts of crypto-evangelists, who believe their currencies offer genuine alternatives for where to put money in times of trouble.

But the amusing thing about celebrating this moment as “the bottom,” as cheerleaders like Mike Novogratz are keen to do, is that a spectacular amount of market value has been destroyed to reach it. Crypto-fans should probably take a longer-term view before starting to write their own death notices for the Bitcoin skeptics.

A cursory glance at the price of Bitcoin Cash over the past year shows that it has fallen about 95 percent from its December 2017 record. So, anyone refusing to crystallize their losses this year has seen their 98-percent loss narrow over the past few days to, well, 95 percent. Celebrating now is like the Monty Python knight calling it a draw after losing all his limbs.

It’s not entirely clear either what kind of investor has the appetite, let alone the resources, to make meaningful bets on digital currencies today after a boom-and-bust cycle driven entirely by speculative hype rather than the adoption of Bitcoin in the real world. Institutional investors won’t be thanked by clients for running back into a dubious market just because it’s much cheaper than it was. Even Novogratz says regular old-world finance investments are more “exciting” now. The long-awaited wave of money from Wall Street looks as far away as ever.

So we’re probably getting back to more natural territory for crypto: True believers and small-time gamblers. That market manipulation is still rife in digital currencies (researchers identified 4,818 pump-and-dump schemes between January and July) won’t deter risk-hunters. There will just be fewer of them.

The slight bounce after a catastrophic year is probably to be expected, but may not be sustainable. One still can’t rule out that these particular crypto-cats are dead.

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Lionel Laurent is a Bloomberg Opinion columnist covering finance and markets. He previously worked at Reuters and Forbes.

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