Bitcoin, the world’s cornerstone cryptocurrency commanding an estimated 43 percent of the crypto market, has suffered a series of sharp drops in value over the past few weeks. This decline has had a devastating effect on the entire cryptocurrency market, dragging its value downward with some tokens being rendered effectively worthless in the process.
Stunning Rise and Fall
(Source: Dead Coins)
In December 2017, as a result of many factors including speculative pressure, pioneering bitcoin futures contracts, and a spectacular bullish market, bitcoin hit record highs approaching $20,000. From January till date, however, its market price has experienced a steady downward trend driven by selling pressures from unsatisfied investors and expiration of futures contracts among other factors.
By the middle of June, its price had fallen to $6,605, and by June 29 this declined further to $5,791. Historically, the performance of bitcoin has performed well as a proxy for the performance of other cryptocurrencies, and this continues to be the case. As bitcoin’s market performance has dwindled, so has that of practically all its major competitors including Litecoin, Bitcoin Cash, Ethereum, Monero and Dash which have all witnesses significant dips in market price.
Apart from selling pressure caused by a market glut of digital assets, analysts have identified a recent series of high profile crypto exchange hacks as a factor that may be influencing the ongoing fall in crypto performance. The SEC’s current position on cryptocurrencies also seems to indicate that outside of bitcoin and ether, which it explicitly named as utility tokens, cryptocurrencies are at risk of being classified as securities and thus coming under regulatory spotlight.
At the same time, regulators around the world are also taking a harder line on cryptos, acting on fears that they are being used to circumvent Anti-Money Laundering (AML) rules and provide funding for terrorists and criminal organizations.
Final Pop of a Speculative Bubble?
Inevitably, comparisons have been drawn between bitcoin’s performance, losing an incredible 70 percent of its market value in just six months, and the dotcom boom of the early 2000, which saw vast amounts of wealth disappear practically overnight as the market embarked on one of the most painful corrections in history wiping out 78 percent of its value.
The total value of the cryptocurrency industry, placed at $830 billion at its height, has now declined to just over $236 billion, with bitcoin alone taking a 14 percent hit in Q2.
Market bulls posit that bitcoin has recovered from worse positions before and that it thus far remains the only cryptocurrency to achieve the widespread adoption and global use that makes it unlikely that it will fold like Pets.com or other dotcom busts from the turn of the century. They also point to a deepening wave of institutional investment coming into bitcoin and crypto as hedge funds and banks feel their way into the cryptosphere.
Other analysts, however, point out that past bitcoin behavior is not a good predictor for its future performance because the market now has a better and more nuanced understanding of bitcoin investment. They also point out that nobody is willing to make a massive bet on bitcoin without seeing a recovery trend first. In the words of Peter Smith, CEO of Blockchain Ltd., “You’ll have to see the market reverse before you see [investment come in].”
Others like Economics Nobel Prize winner Robert Shiller describe bitcoin as a credible asset which nevertheless is a bubble. In the midst of all this, around 830 relatively unknown coins are currently listed as worth practically nothing by Dead Coins. These are the biggest victims of the beating being taken by cryptos now.