Why Has Crypto Dipped So Low in 2018? – Guest Editorial
Has the bubble burst?
Over the weekend the price of Bitcoin dropped to a two-month low, seemingly in response to news that Coinrail had been the victim of a hacking attempt, and in the following 24 hours dragged its fellow cryptocurrencies down with it. Bringing the total loss of value for Bitcoin to %50 this year
What happened to the crypto-crazed hype of 2017? Why has the crypto-market lost so much value over the course of only five months? It can’t be as simple as one hacked exchange. Can it?
Of course not, but it is one of several contributing factors including increased regulatory scrutiny and enforcement, and decreased trading volumes.
Now that the crypto-hype has passed and we have accepted digital currency as part of the financial landscape what has contributed to the loss of value that has plagued Bitcoin since January?
For many crypto detractors the fall in value has been “a classic asset bubble bursting”, but that’s not all there is to it. There are still plenty of pro-crypto traders that are just riding (and trading) the dip, waiting for the next rally
So what are the major factors affecting the decreasing prices in the cryptocurrency markets? I’ll start with hacks because we started there.
Increased hacking levels
It can’t be denied that while the blockchain itself is considered “immutable” and “unhackable” the points of weakness along the path such as exchanges are not as safe as previously thought.
Through no fault of their own, exchanges, wallets and platforms are becoming increasingly viable targets for hackers. The hacking of Coinrail last week was just the latest in a string of targeted attacks across the field of exchanges. There have been several high profile attacks in recent months.
Increased numbers of successful hacks across exchanges have led to a decrease in investor confidence.
Decreased Trading Volumes
When Bitcoin price crashed after its December high of >$19,000, the number of investors and transactions naturally dropped. But it wasn’t just the price drop that affected trading volumes (although it is a significant factor). High transaction charges had an impact too.
Another contributing factor to the decrease in Bitcoin trading volume is that many platforms, which previously only allowed for payment in Bitcoin, have added additional payment methods including some fiat payments and other altcoins such as ETH, BCH, LTC and others.
Increased Regulation
If anything has significantly affected Bitcoin and all of its altcoin affiliates, increased regulatory scrutiny has to have been the primary. Up until the major explosion of cryptocurrency development and utility in 2017, there was not much in the way of governmental scrutiny or oversight. Now that people have made their huge gains and Bitcoin utility is increasing, along with some of the other high profile coins, governments want to get their hands on any revenue. As well as weeding out the scams and con artists, swindled investors don’t make any taxable profits.
One of the major draws of cryptocurrency has been its lack of government involvement and its anonymity. Increased regulatory pressure to eliminate anonymity and place governmental restrictions on its uses and tradability has caused some of the crypto community to take a step back and reassess their investment
Hostility or Indifference from Institutional Investors
The most notably hostile approach to Bitcoin was from Warren Buffet, of Berkshire Hathaway, you can’t get much more hostile than calling Bitcoin “rat-poison squared”.
However, it isn’t just the hostility that damages a cryptocurrency’s hope for uptake, but also the indifference.
You can’t hope to create a globally viable digital currency without the major investors who invest in (and control?) the fiat markets. What good is a fantastic cryptocurrency without institutional utility? It doesn’t matter if the whole retail world gets on board with Bitcoin, if the big investors, governments and monetary funds don’t get on board the system is pointless. Please excuse the hyperbole.
So how will this situation resolve?
It’s only June, there is still plenty of time in the 3rd and 4th quarters of the year for Bitcoin and the altcoin tribes to rally and make another reasonably successful run.
As far as hacking is concerned, it’s going to happen. However, every time there is a hack, the security gets tighter, and the hackers have to work harder. It’s a developing environment, and it takes time to iron out the wrinkles in the system. There was a similar lack of confidence when countries scrapped the gold standard. It’s not unusual for new developments to have swings in confidence while smoothing out difficulties.
Trading volumes will stabilize and when they do the prices will stabilize.
Regulation will happen, there is no doubt about it. The systems that fight to maintain the anonymity and reduced controls that governments and global financial institutions will implement will be driven into the realms ‘underground’ trading. Regulation is not a bad thing when it comes to clamping down hard on borderline pyramid schemes and unsubstantiated developments. Legitimate currencies, which embrace regulatory controls, will flourish under the veil of credibility that acceptance of regulatory control bestows.
Institutional investment is coming. With companies such as Goldman Sachs and Fidelity making plans and entering the crypto-market, there will be a race to see who can take the best advantage of joining the crypto trading community. A survey by Triad Securities indicates that huge 62% of institutional investors are buying or thinking of buying. That will be a huge boost to crypto viability and credibility. The major exchanges are prepping for institutional investment, with Coinbase announcing the launch of a cryptocurrency asset management platform directly targeted at institutional investors.
Crypto has taken a beating over the past five months, but the continued attempts to break resistance points and the ‘controlled’ decline hasn’t been a straight up or down situation. Continued development on the Bitcoin blockchain will see improvements in scalability and cost. Regulation will see credibility increase and new investment from large institutions will mean validation for cryptocurrency.
Bitcoin isn’t dead, it’s just having a bad ‘day’.
Disclaimer: FinanceFeeds does not endorse investment and any activities related to cryptocurrencies, crypto-assets, initial coin offerings, digital assets and tokens. The views expressed in this article do not reflect FinanceFeeds’ views on the matter
