It's all over the news… “BITCOIN IS CRASHING…” is the dominant headline around the world. Many are claiming it will be the end of cryptocurrencies as all but two of the top 100 showed significant drops in value this morning.
Some will tell you this was completely expected… the recent gains in the value of Bitcoin have been monstrous, creating a bubble that inevitably would crash just as it has today.
Others are completely surprised… they believe cryptocurrencies are the future due to the emergence of blockchain technology and the desire to limit the influence of banks and government on money transactions.
The jury is still out on the long-term question and who is right has yet to be determined.
But what caused this particular fast slide in Bitcoin value?
The following article from our friends at forbes.com may shed some light…
‘Tis The Season To Be Spending
Setting aside speculation and the general (deserved) fervor around blockchain technology, few cryptocurrencies currently serve a purpose that benefits the average consumer more than cash does. Speculative buyers do not necessarily equate to market stability—as many will seek to cash out on early gains rather than ‘hodl' through the waves of market volatility.
The end of the year marks the time when these investors would be most likely to convert their winnings to cash, and yesterday—conveniently just a few days before Christmas—might have been the day that experienced the greatest impact of this behavior.
Bitcoin Cash Confusion on Coinbase
On Tuesday, Coinbase announced it would support buying, selling, and trading Bitcoin Cash (BCH) on its platform.
So it's no surprise that the noticeable and seemingly out-of-the-blue gains made in BCH in the days and hours leading up to the announcement caused some on social media to cry “insider trading.” This resulted in Coinbase shutting down BCH trading within minutes to launch an internal probe into the possibility that insider trading occurred.
By the next afternoon, BCH was in full force again on Coinbase. But the impact might have been deeper felt than we initially realized. For those who didn't pay too much attention to the hullabaloo, it might have just amounted to extra, unwanted confusion to keep them from participating further.
Image courtesy of: Raul Marcel
We also have to entertain the possibility that foul play is afoot. What would that look like?
A recent report in Bloomberg revealed that a group of 1000 investors own 40 percent of all Bitcoin. This means that—if even some among that number were acting in concert, they would have the potential to manipulate the market to their whim. These “whales”—investors, hedge funds, and otherwise with enough stake in the crypto market to tip the scale—could easily have engaged in “painting the tape” (creating the appearance of high transaction volume by simply selling and re-selling back-and-forth on small margins) to inflate the value of Bitcoin.
Why would they do that? So that they could sell off at the highest possible price before inducing a crash by selling off mass amounts of their Bitcoin stock. By essentially scaring fair-weather fans with FUD (“fear, uncertainty, and doubt) who started buying in on the crypto hype without much study of the market, whales stand to make off like bandits. How? By selling off at record highs, dropping the market to record lows, then buying back in.
This is made even more appealing with the launch of bitcoin futures trading on Cboe and CME, which sets these players up to short the market.
Hacking & Regulation
Image courtesy of: pinguino
Earlier this month the SEC halted PlexCoin on charges of being an ICO scam, and this week it reportedly suspended trading in The Crypto Company over “concerns regarding the accuracy and adequacy of information” and stock manipulation. Meanwhile, Youbit, the popular South Korean exchange, announced its closure on Dec. 20 after being hacked (purportedly by North Korea), losing 17 percent of all assets.
As an added note, the ‘insane' energy costs associated with Bitcoin mining continue to garner negative press as we move into the new year.
There is a chance that the general concern created in these developments has scared off potential investors and even caused existing participants to cut their losses.
The Bubble Was Real & Crypto Winter Is Coming
If we are entering the crypto winter, the past eight years of Bitcoin has revealed two things: 1) that Bitcoin always bounces back—and with it, a whole roster of cryptocurrencies (with inevitable casualties along the way), and 2) the demand for decentralized currency and blockchain technology is here to stay. Some might urge you to cut your losses now before the supposed winter blusters in harder. Others might say it's just another hump in the road.
Whichever side of the coin you are on (pardon the pun), it is difficult to argue that investing in Bitcoin and other cryptocurrencies has risks… which also allows for the possibility of massive gains. Like most investments, the trick is to buy low and sell high, though this is always easier said than done.
It is my opinion that block chain technology and the desire for individual control will insure the continued existence and growth of cryptocurrencies. It is probable that savvy entrepreneurs will find a way to incorporate their use into trading tangible goods and services, rather than just speculative trading on the value of the currency.
So the question I have for you is this…
Do you believe cryptocurrencies are the wave of the future or about to go the way of the VCR? Please let us know your thoughts in the comments below.
Until next time…
Take care and God bless
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