Recent Market Drop Reveals Industry Is Entirely Speculative Driven
Cryptocurrency–Confusing is the best word to sum up how the crypto markets have performed over the preceding weeks. Despite the excitement of July and early August’s price rally, a welcome sign in an otherwise severely bearish year, the crypto markets have again failed to hold momentum and slipped backwards. While Bitcoin has managed to sustain above $6000 for the time being, many of the top ten altcoins and beyond have reached all time lows for the year–some of which are approaching their valuation prior to 2017’s end of year explosion.
Crypto Markets Continue to Fall
The result is investors and cryptocurrency enthusiasts left scratching their head and wondering how an investment class that is already eclipsing 90 percent in losses from the beginning of the year can continue to fall.
Some place the blame on the recent emphasis over a Bitcoin Exchange Traded Fund. While ETFs were hardly mentioned during 2017’s bull run (most of the news on that front was consumed with CBOE’s launch of BTC futures) the recent narrative in crypto has approached near obsession over the U.S. Securities and Exchange Commission green-lighting a Bitcoin ETF. The largest proponents of a BTC ETF are the same that continually rally around the “institutional money is coming” slogan, a belief that once Wall Street and other big-capital investors turn their sights to cryptocurrency prices will resume smashing all-time highs. However, the net effect has been an investment base hinging upon news of ETF approval, as opposed to any discussion on the advancement and adoption of cryptocurrency.
While 2017 will be remembered as one of the most bullish crypto markets of all time, 2018 has been far more practical in the sense that crypto’s real world presence is growing. Stories of adoption that are commonplace today would have been celebrated endlessly just twelve months ago. It’s understandable considering the wild price ride to end 2017 brought in a host of new investors–many of which are sitting on >50 percent losses–that are looking to recoup on their investment or find some positive spin on the massive fallout in value. However, speculation alone will not continue to drive the industry. The dot.com bubble never came close to killing the internet, despite the massive amount of capital it flushed down the drain in addition to shuttered companies, because the internet proved itself to be a resilient and necessary technology. Most within the industry of cryptocurrency find similar value in Bitcoin and other projects, it’s just the focus which has shifted away to endless discussion of price.
Price Speculation Driving the Industry
The Union Bank of Switzerland (UBS) published a report last week concluding that 70 percent of price movements within the crypto markets could be classified as speculative “momentum driven” interest. Value investing has gone out the window as nearly every cryptocurrency community experiences the inverse reaction of positive news being met with declining price. Again, the blame can somewhat be tied to the overall market reliance upon the health of BTC: altcoins rarely hold a standalone impact, and are always at the mercy of the original cryptocurrency when the market turns downward.
But even research into the various technologies, development teams and stories have adoption can be met with a degree of price mockery. To give a recent example, TRON announced a partnership with the world’s leading and most recognizable torrenting service BitTorrent, only to see a decline in price that is 93 percent below January’s all time high. Every currency is suffering, and investors are left with no choice but to try and time the market and cut their losses. However, most of the speculation is being driven by a pan-belief in the declining market. Investors are selling because they believe others will sell and the price will go down, creating a self-fulfilling prophecy that is not indicative of the health of the industry.