The fall of Bitcoin: whether to wait for a new increase in the value of digital money
The cost of bitcoin fell to an annual minimum. However, this does not mean that the cryptocurrency has no future.
There is no trace of crypto-fever that we observed in 2017. Prices for all digital currencies, including the market leader Bitcoin, continue to decline. The fall is about 70% of the December highs. The bubble burst, as predicted, but this does not mean that cryptocurrency has no future. What we see now is a correction in the ordinary cycles of any market. Considering the low liquidity and high speculative component of the cryptocurrency market, it’s natural that these cycles are much more dramatic here. We already observed a similar situation at the end of 2013 - then Bitcoin for a couple of months increased from $ 100 to almost $ 1200, and then collapsed back to $ 150.
In history there are many cases of such falls. The most obvious parallel is the NASDAQ technology company index, which fell by 78% in 2000–2002. Then a lot of projects that appeared during the dot-com boom disappeared, but companies such as Apple and Amazon began to cost hundreds of times more. The NASDAQ index is now trading seven times higher, and we are talking about a regulated, liquid and much less volatile stock market. The same fate will befall the cryptocurrency market: projects that have emerged only thanks to the general insanity of quick money, will only live on paper; Those teams that will be pioneers in the massive implementation of the blockchain will be new to Apple and Amazon.
Investment in the masses
Another feature of the cryptocurrency market is the almost zero entry threshold. In the wake of the general excitement, this led to the emergence of a large number of small “investors” who, seeing constant growth, entered at maxima, not understanding the essence of technology and potential risk. At times, this even led to the stopping of the registration of new users on cryptobirths: they could not cope with the flow of applicants. Many used credit cards, lost all investments and remained owed to the bank. Payment by credit cards is now banned, which also cooled demand.
The number of search requests for Bitcoin and other cryptocurrencies collapsed by 70–80%, and the number of new wallets is growing only a couple percent per month, at the end of 2017 this figure was 8%. Popularity among the general public and the price moved in sync. When the stream of late buyers dries up, we always see powerful corrections, and this is normal. Prices are returning to more adequate and equilibrium values, and in order to stabilize the market, big and long money must go to it.
All this overlapped on the news background, which this year also did not contribute to growth: hacking and embezzlement of cryptocurrencies from Coincheck, Bithumb, Coinrail and others, bans of advertising by Google and Google from ICO, and most importantly - tightening market regulation and the shaft of investigations by the SEC to recognize tokens securities. The authorities are reasonably afraid of losing control over cash flows, which can be used for the purposes of terrorism, tax evasion or deception of investors. Impunity has spawned many fraudsters who mislead citizens who are not too technical and financially savvy. According to Andrew Smith, director of the Consumer Protection Bureau of the US Federal Trade Commission, the total damage from fraudsters in 2018 could be more than $ 3 billion. According to CAICT, only 8% of all blockchain projects are still active.
However, despite the dissatisfaction of crypto-anarchists, clearing the market with regulation will benefit all participants. We will have to say goodbye to anonymity and start paying taxes, but trust in the industry will increase, and this will attract large institutional investors. Many in the market expect that the next wave of growth should be the entry of big capital into the market.
The first steps in this direction have already been taken - futures for bitcoins are traded on the CME and CBOE exchanges. And after the SEC recognized that bitcoin and ethereum are not securities, but have more similarities with goods, the head of the CBOE expressed confidence in the final elimination of barriers to the start of trading in futures and on ethereum.
Work is underway on the launch of a cryptocurrency ETF by SolidX Management LLC and VanEck Associates Corp., who have filed a joint application with the SEC to launch the product. The value of the fund's share will be $ 200 thousand, which speaks of the aim of institutional, rather than retail investors. Companies have already filed similar applications earlier, but received a refusal. However, now representatives of the companies expect that the structure of the new product takes into account the SEC's concern about the low qualification of retail investors and the lack of transparency in the exchanges, many of which are outside the US.
In addition, the emergence of ETFs will lead to the entry of millions of new investors into the market who did not want to deal with unstable cryptobirths, verification procedures and other inconveniences of working with digital assets. In this case, any investor will be able to buy ETF shares directly from his brokerage account, which many Americans have.
Even the Chinese authorities are considering the possibility of lifting the ban on ICO. The PRC can equate digital money with financial services and regulate it accordingly, and companies producing tokens will have to receive special licenses.
Investments and development
We constantly see news that big capital and the authorities of some countries are investing in blockchain technology. From the point of view of assessing the prospects of the industry with “smart” money, this is a positive signal. Here are a few such projects lately.
Coinbase Cryptocurrency Exchange creates a range of products for institutional investors. Over the past few months, more than a hundred hedge funds have announced plans to invest in cryptocurrencies, and Coinbase is preparing secure storage of digital assets in partnership with an ETC broker-dealer regulated by SEC.
The Chinese division of one of the largest venture capital funds, Sequoia Capital, has invested $ 400 million in hardware manufacturer Bitmain for mining Bitcoin and other cryptocurrencies.
Another well-known venture company, Andreessen Horowitz, launched a $ 300 million fund for investment in the blockchain industry.
Tradeshift, a company specializing in supply chain management, has raised $ 250 million from investors, including Goldman Sachs, to develop blockchain solutions for its services.
The authorities of South Korea have published a blockchain technology development strategy, under which they are going to invest more than $ 200 million. The country plans to grow more than 10 thousand specialists and establish one hundred companies in the areas of electronic document management, maritime logistics, real estate, online voting and customs.
Facebook recently weakened the ban on advertising ICO and cryptocurrency - now approved advertisers will be able to post content about cryptocurrencies and related topics, although ICO will remain still banned. In addition, Facebook gathers a team that will develop and implement blockchain solutions within the company. This direction will be headed by David Marcus, who is on the board of directors of Coinbase. Some analysts have suggested that Facebook is going to buy a stock exchange. So far there are no official comments on the possible sale, but the audience of the social network is about 2 billion users and the potential introduction of cryptocurrencies can provoke a huge leap in the development of the industry.
While retail investors are desperate, and big money is just preparing to enter the market, a vacuum has arisen, which seems to have led to a drop in the price of bitcoin. When the cryptocurrency market becomes clear with regulation and infrastructure for large investors, one can expect a significant increase in the value of digital money.