Unfortunately, as is just about always the case in investing, the answer is far from clear. Some believe that, the "bitcoin bubble" has popped and prices will continue to decline until the currency fades into the history books. Others believe that. while the bubble has popped, we are now at the floor and now is the time to invest. Others believe that the price will rise or continue to fall for seemingly unending, other reasons.
I won't be taking a stand on whether or not I believe the price will go up or continue its descent in this article, Instead, I will present what seem to be some of the more likely scenarios behind price fluctuations, and what that means for the future.
1. The Bubble Has Popped
Above you find the famous "bubble chart;" showing how bubbles form in financial markets and then inevitably crash back to Earth. Now compare this graph to the price of bitcoin over roughly the past two years:
Pretty similar, right? That's the thinking of many who believe the price of bitcoin has been the product of a bubble, and its subsequent burst, over the past 2 years. The top was just short of $1,200, a bull trap occurred, depending on who you ask, between $700-$800 or $400-$500. According to this theory, we are in or near the "despair" stage as price declines towards the base of the bubble.
Even with the assumption that we nearing the end of the traditional bubble cycle, there are still disagreements with what the future holds. Some believe that we will continue along it's path, leading to a bitcoin bull market in 2015. Some credence has been given to this theory due to the past week's 20% bounce.
Some disagree that the bubble crash is anywhere near over, though. While they agree that the run-up was indeed a bubble, they don't see any reason for bitcoin to survive the end of it's speculative hype. Instead, they believe it will prove to have no utility in the real world and the price continuing to decline to$0.
2. Miner Dumping is Depressing the Price
Another theory is that Bitcoin miners are depressing the price by selling immediately to market what they have mined. As the Bitcoin infrastructure has matured, some believe that more and more miners have joined the network with the intention of quick profits. The immediate selling of new coins by these miners, as the theory goes, has largely overcome the demand required to maintain the high prices of 2013.
3. It Was All Just Price Manipulation
Lastly, some believe that there was never actually the kind of demand necessary for the astronomic growth seen in 2013. Instead, the price was artificially inflated by fraudulent buy orders on now-defunct Mt. Gox. These claims were put together on a wordpress site called the Willy Report.
If this is the case, how low does the price actually have to go to come in-line with what the actual supply-and-demand calls for? Mt. Gox opened in 2010, when the price of a Bitcoin was less than $1. When Karpeles took over in 2011, the price was still under a $1, but then immediately took off to more than $25. Is this when the manipulation could have started? We'll have to wait and see.