Cryptocurrencies – Is It Slowly Trending Out?

Cryptocurrencies – Is It Slowly Trending Out?

 

2018 Trends to Date

Are they on the slippery slope down – or is this just a market correction for last year’s overvaluations? some may say that it is slowly trending out. The value of Bitcoin and several of the other more recognized cryptocurrencies have been on a downward trend for much of 2018, following on from their peaks in late 2017. Bitcoin was valued at up to $19,500 in December 2017 and now it’s being priced around $6,000 to $10,00 in early 2018. So why the fall in market price and what is the outlook for the next few months?

 

Facts and Figures

Cryptocurrency Price

31/12/2017 $

Price

04/06/2018 $

Market Cap

31/12/2017 $

Market Cap

04/06/2018 $

BTC Bitcoin 13,170.18 7,682.64 220,903,949,498 131,154,658,298
ETH Ethereum 721.66 602.88 69,767,510,695 60,189,092,630
BCH Bitcoin Cash 2,459.32 1,103.18 41,526,715,510 18,933,441,024
XMR Monero 338.10 168.69 5,255,620,533 2,714,981,441
LTC Litecoin 220.00 124.17 12,000,947,760 7,053,956,596
DASH Dash 1,008.33 327.02 7,850,364,658 2,651,934,045

 

*https://coinmarketcap.com/historical

 

Some analysts suggest this is a correction to the (too) high values seen in late 2017, others say that crypto prices in 2017 were a representation of market sentiment getting a little ahead of itself and that there is still a lot of reason to see an increase in their values in the second half of the year.

A Brief Introduction to Crypto ideology

Ethereum, blockchain, Bitcoin are all part of the promising new wave of digital life, but are they going to make it into the next decade? There is no doubt that there are many advantages to having a form of payment that is not tied to a geographic region, in the same way that access to so much of digital life is not geography specific. E-commerce has provided people with access to global shopping and the means of payment for these goods should ideally be borderless. More and more people are working cross-border through digital platforms that encourage international collaboration. Here again, it would be beneficial for people to be paid in a way that does not discriminate, based on the geography of the contractor or worker.

Cryptocurrencies versus Traditional Currencies

The biggest distinction between fiat (traditional dollars or pounds etc.) and cryptocurrencies is the lack of sovereign banks and state support or underpinning in the value of crypto assets, although various governments are either recognizing or restricting the adoption of cryptocurrencies as a means of payment or investment. If this can be seen as an advantage rather than a disadvantage, then the future of cryptocurrencies is much more promising.

Where there are local political policies or events that cause fluctuations in the price of a national currency, in theory, cryptocurrencies should be less susceptible to such influences, making them less responsive to local regime changes. However, it has been shown that the crypto market is highly volatile when major governments look to regulate it.

 

In the end, it will boil down to their utility by the people globally. Hence, this is where we need to look more closely at how, why, and where cryptocurrencies are accepted or rejected.

Outlook

Let us take a look the possible rationales for either a rise in market price or a further fall:

The Rationale for a Rise in Price

Cryptocurrencies could still be considered to be in their infancy and as more people become aware of them as a new means of transacting online, or as an investment, this utility demand will increase their price (How will blockchain impact our lives). However, this still hinges on acceptance by the mainstream payment facilitators.

ICOs and ITOs

Many tokens are issued to source capital for new ventures, either through crowdfunding or from speculative capital investors, and these tokens can often be converted into other cryptocurrencies. A lot of the acceptance for cryptocurrencies is dependent on the success of some of these much-hyped tokenized ventures, and this can only be achieved over a five to ten-year period. As some businesses seek to reward their initial investors, paying out in tokens exchangeable for other cryptocurrencies, then this will increase their useful functionality, which should lead to greater acceptance.

Volatility

However, the crypto market is likely to remain volatile while it searches for acceptance by mainstream payment facilitators, and as governments still look to regulate local market activities. In the end, it will boil down to their utility by the people. For this, we need to look more closely at how, why and where cryptocurrencies are accepted or rejected to support future price rises.

Measures of Acceptance of Cryptocurrencies.

One measure of this which is currently being touted is Daily Active Addresses (DAA) which can be used to show whether the number of people investing is increasing over time. The weakness of this is it does not include those who were early investors looking to hold for a long-term gain, without being active on a regular basis. Another indicator could be the total market capital of all cryptocurrencies, but this includes some element of speculative future sentiment, so again does not give a clear picture of how widespread a marketplace has been established.

The Rationale for a Further Drop in Price.

Cryptocurrencies may be the way forward in the digital age, but any form of payment mechanism has to be represented by an underlying asset or security, in the same way that banks need to hold a security for all their loans. Without this the future of crypto-assets is uncertain. They are a highly speculative investment and as such very fragile to boom and bust scenarios.

Security and Bans

The biggest short-term threats to cryptocurrency prices are fraud and hacking of either wallets or exchanges which cause nervous investors to retreat or incur major losses, along with restrictions on access to purchase and exchange through various government’s regulations or bans on trade (such as for the Venezuelan Petro). Although Blockchain is based on a very secure unalterable ledger system, there are vulnerabilities in various parts of the total ecosystem used in buying and holding cryptocurrencies. The level of security has improved in recent times with more due diligence, KYC (Know your Customer) and AML (Anti-money Laundering) checks carried out by brokers to limit risks, but any largescale future events could severely damage confidence in the market.

Market Fixing

There are also limitations on the volume of deals, and the risk of a deliberate fixing or crashing of the price in the market if a major holder looks to cash out their cryptocurrencies. The market is not as liquid as those of major fiat currencies leaving it more vulnerable to large volume deals influencing the price and stability of trades.

Hype and Market Sentiment

Cryptocurrencies attract a lot of attention from speculative investors and so if the general public’s consensus moves against these assets then there could be a major deflation in price, which could lead to failure in a crypto-currency or currencies. This would cause a snowball effect and any bubble would definitely burst.

To conclude, Like with any nascent financial instrument there is much risk and high levels of volatility in the dealing of cryptocurrencies, but also the potential for huge rewards for some investors (5 reasons why the stock market crash is inevitable).

 

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