Unfortunately for traders, the Bitcoin price has continued to slump lower during overnight trade.
At the time of writing the cryptocurrency has just hit US$3,900 according to CoinDesk, which is approximately 22% lower than its record high at the start of September.
Is it going to crash?
While some traders are calling this a correction, others think it could be the start of a crash.
The cryptocurrency has come under significant selling pressure in recent days after being barraged with negative news.
The first blow that Bitcoin received was the banning of initial coin offerings by the Chinese government. This was then followed by speculation that its regulators may close down exchanges in the country, leading many to believe an all-out ban of cryptocurrencies wouldn’t be far away.
On Tuesday JP Morgan CEO Jamie Dimon attacked Bitcoin, describing it as a fraud that will blow up.
And finally, overnight, respected economist Mohamed El-Erian claimed that Bitcoin is worth only half to a third of its current price.
According to CNBC, El-Erian thinks that traders are being too optimistic on the possibility of Bitcoin’s mass adoption. The Allianz economist doesn’t believe governments will allow the amount of adoption that’s being priced in.
Should you avoid Bitcoin?
I think that that the prudent thing to do, even for risk takers, is to hold off investing in Bitcoin. In my opinion, Bitcoin’s future success will depend greatly on the China market.
An estimated 80% of Bitcoin trading occurs in China at present. Should Chinese regulators suddenly ban all activities then I think it is reasonable to expect a Bitcoin crash.
In light of this, I would wait until the Chinese government makes its intentions clear. In the meantime, an investment in tech shares Appen Ltd (ASX: APX) and Altium Limited (ASX: ALU) may offer investors a significantly better risk/reward.