Bitcoin took a beating in 2018. But it's probably not dead.

The digital currency deflated after making millionaires of early adopters. The pain isn't over, experts say, predicting bitcoin may sink another 75 percent — though they defend the pioneering token's long-term viability.

A single bitcoin is worth slightly more than $4,000, and academics believe it could sink to $1,000. Federal investigators are probing whether fraud fueled a bubble, and some investors are clamoring for regulation.

“Over the last year, bitcoin has traded like a high-risk, high-return asset class,” said Lamont Black, a former economist at the Federal Reserve Board of Governors and a finance professor at DePaul University.

“Investors drove up the price of bitcoin [in 2017] based on speculation of future returns. Now bitcoin has returned closer to historic levels,” Black said. "The price of bitcoin in early 2017 was only $1,000. I don't think it would be unreasonable to return to that level before stabilizing.”

What caused bitcoin’s tremendous surge — and what’s driving the continued decline — remain hotly debated.

A June paper co-authored by University of Texas at Austin finance professor John Griffin found bitcoin's value surge last year — a single bitcoin was worth nearly $20,000 before Christmas — was attributable to tether, a digital "stablecoin" currency that supposedly is backed by $1 for every token.

Tether, according to Griffin, was used to purchase bitcoin, driving up its value, when the market dropped. In November, Bloomberg reported that the Justice Department is investigating whether illegal price manipulation using tether drove bitcoin’s boom.

Tether skeptics say its supposed dollar peg may be a scam, though its issuers deny it, insisting there are hundreds of millions of dollars in bank accounts. Stuart Hoegner, general counsel of the Hong Kong-based Bitfinex exchange, which is closely linked to tether, did not respond to a request for comment.

Griffin said his research “indicates that tether printing is behind substantial manipulative increase” in bitcoin and that he “could imagine that other related manipulative activity may play an active role as well.”

“Bitcoin was slightly over $1,000 in March when the tether printing started. Given this baseline, if tether were proven to be fraudulent, the bitcoin decline could still have a ways to go,” Griffin said. “If there is no money backing tether, and the market recognizes that the price support is fake, bitcoin could drop substantially, potentially where it was before, or even lower.”

As the market tanked this year, newly minted millionaires made fast decisions on converting precarious riches into real-world wealth, inhibited by withdrawal caps at bitcoin exchanges but aided by entrepreneurs such as Elizabeth White, CEO of the New York-based White Company.

White’s company accepts payment in bitcoin, incurring risk in exchange for a fee, and transacted about $250 million over the past year, she said, including dozens of luxury car sales and millions of dollars in gold.

White said she believes that bitcoin’s value may sink to $2,600 — losing less than half of its current value and returning to summer 2017 levels — but that “I think that reaching a low of $1,000 is unlikely in the short term because there are still a lot of speculators” looking for longer-term earnings.

“If bitcoin approaches $1,000 it would be very attractive to many investors,” she added.

White blames the prolonged price drop on lighter speculation, less hedge fund participation, and liquidation of hacked bitcoin exchange Mt. Gox’s more than $200 million in bitcoin. But she said bitcoin will remain the go-to digital currency, as the price doesn’t matter for people sending cash or making a sale without using banks or credit card companies to process the transaction and levy fees.

In the long term, White believes the value will rise again.

“We have seen indeed quite a few clients that did want to cash out, sometimes in the millions of dollars,” White said. “However, we have also had newer clients that have seen this as a buying opportunity. They are typically approaching it with a longer term view, planning to stay an investor for 3-5 years, and not expecting bitcoin to generate 100x returns like the 2017 speculators.”

Black, the former Federal Reserve economist and professor, said he also believes bitcoin will be around for the long term, blaming the surge on a “classic bubble” and expressing doubt that tether played a singular role.

“My long-term outlook for bitcoin remains positive but I don't expect a recurrence of exponential growth. I think bitcoin has a role to play in the 'blockchain economy' of the future," he said. "As additional cryptocurrencies and other blockchain applications become 'legitimate,' then bitcoin could become a relatively stable foundation for transferring value across these various investments.”

