News out of China seems to have the most profound effect on bitcoin prices, and by extension the prices for all of cryptocurrency. The most recent bout of selling has been triggered by the latest round of negative news, where there are partially confirmed rumors of authorities tightening their grip against digital currency in requiring banks to shut down accounts of Bitcoin businesses.
So what are the possible outcomes? How low can we go?
Best case scenario (highly unlikely, 10% chance): China wakes up in a good mood one morning and calls the whole thing off, or perhaps deem the whole endeavor as too insignificant to spend more time on, instead engaging in more worthwhile pursuits such as chasing after forex trading. Outcome: Bitcoin returns to $1000+, Litecoin to $35+ over several weeks. This of course will also require the absence of other scares, such as MtGox’s or DDoS.
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Moderate scenario (45% chance): Exchanges find a workaround until the authorities find a new solution; essentially similar what we’ve experienced over the last few months, a game of cat and mouse. The market stays pensive and eventually the issue is not a priority on people’s minds. Bitcoin oscillates between $400 and $700, depending on other events.
Worst case scenario (45% chance): The fist comes down and makes a material difference in how Bitcoin is interacted with in China, essentially returning it to the pre-craze levels observed last November. One will recall that prior to then, Bitcoin traded stably below $200 before experiencing a meteoric 4-fold rise. This would seem to be the next level of support, perhaps considered a quasi-valuation based on the value of its technology or facilitating illegal activity. For Litecoin, this would be $4. For both, these would be the base levels after a gradual-moderate period of selling as the China dust settles. However, this does not prevent further technical selling thereafter to earlier support levels of $100 and $2 respectively, especially in the event of more Gox-like developments.
As for the other altcoins: in the worst case scenario, one expect for their valuation to be reduced to pennies on the dollar, with many ceasing to exist altogether. Under the first two scenarios, it’s a tough call.