Why Crypto Market Is Down
There’s no way to avoid mentioning it – the cryptocurrency is down. It’s actually been down since early 2018.
What many people want to know is why the crypto market is down so much. And this article will provide some answers to that question.
Difficult to Make Money
The crypto bull market of 2017 was at least partly caused by money entering the market due to how easy it was to make money due to initial coin offerings (ICO). That came to a halt in 2018 and with it cryptocurrency prices collapsed.
ICOs weren’t the only way to make money in cryptocurrency in 2017, though. Many people entered the cryptocurrency market to mine coins or to day trade because they were also viable ways to turn a profit at the time.
Unfortunately, none of that is true in today’s cryptocurrency. Mining is rarely profitable these days and day trading in a bear market simply doesn’t work very well.
With that said, a lot of money and interest in cryptocurrency dissipated when the three most popular ways to make money in cryptocurrency stopped working.
SEC Slow to Regulate
The Securities and Exchange Commision (SEC) has had plans to regulate ICOs for years. But they have been slow to fully regulate ICOs, which has caused a significant amount of uncertainty in the market.
One thing the SEC has done is fine an exchange and reject cryptocurrency exchange traded funds (ETFs).
This level of uncertainty from the SEC has left many potential investors with cold feet about entering or reentering the cryptocurrency market.
One of the biggest hurdles with cryptocurrency is that it’s viewed as a short-term investment by most investors.
Cryptocurrency investors tend to be younger and view it more as a get rich quick scheme than a retirement investment. This does lead to increased liquidity. However, it makes the price extremely volatile, which will scare off the institutional investors that would help inflate the price of cryptocurrency.
If you mention Bitcoin to the average person, the first thing that comes to mind is “scam.”
This isn’t a good association.
Unfortunately, it’s not a baseless association. Cryptocurrency does have a lot of scams. These mostly involve “pump and dump” schemes that involve a group pumping the price of a particular cryptocurrency up and then selling it at the peak.
It’s actually quite similar to the negative connotations associated with penny stocks.
Sadly, this association has only gained steam due to a few high-profile ICOs and SEC investigations. There are obviously legitimate ICOs, but those are always overshadowed by the handful of bad actors on the marketplace.
Problems with Tether
For those that don’t know, Tether is a stablecoin that Bitfinex backs. This stablecoin is pegged at 1 USD to 1 USDT (Tether).
There are a few problems with Tether, though. The biggest one is that many are doubtful that Tether actually has the amount of they claim to have in reserves. If true, then this would crater the price of Tether and be a major blow to Bitcoin.
This isn’t a baseless claim, either. The Department of Justice is investigating Tether to determine if they have the funds they claim. On top of that, researchers have proposed that Tether was used to purchase bitcoin in 2017 to mitigate any price decrease in bitcoin.
These allegations have not been proven in court. However, the perception about Tether in the cryptocurrency community is extremely negative, which has scared off a lot of investors. Why has it scared off investors?
Many expect that the price of bitcoin will crater if the Department of Justice shuts down Tether. In fact, many investors are waiting for the Department of Justice to make a decision on Tether before entering the market.
Cryptocurrencies have a surprisingly low liquidity despite their increasing popularity. Why?
The exchanges often don’t have cryptocurrency in reserve to provide large liquidity. This is more apparent with less popular coins, but it does occur from time to time with bitcoin and Ether.
This problem probably won’t be solved anytime soon. The cryptocurrency industry is simply too fragmented at the moment for any exchange to have a large enough base to provide high liquidity.
You can expect a more stable price when the liquidity issue is eventually solved, though. Low liquidity is the primary cause of the huge price fluctuations of cryptocurrencies.
Cryptocurrencies are much more secure than traditional financial instruments. Compare the Equifax breach to the amount of hacked bitcoin wallets.
There simply isn’t any comparison. Bitcoin wallets are virtually impossible to hack.
The problem is that there have been many notable hacks of cryptocurrency exchanges, which has scared off a lot of potential investors.
We’d like to remind people that cryptocurrencies are extremely secure. The exchanges are not nearly as secure. In fact, they have similar security concerns as a bank.
With that in mind, we recommend keeping your cryptocurrency in a cryptocurrency wallet to prevent any problems.
It’s Mostly Bitcoin
Bitcoin makes up the majority of the cryptocurrency market cap. This is because altcoins almost always accept bitcoin or Ethereum as investment. And they never accept fiat currency.
All altcoin investments must go through those two coins.
This is good for Bitcoin and Ethereum. The downside is that investors can’t diversify their portfolio, which scares them off from the large crypto marketplace.
This article might sound pessimistic, but it’s really not. The concerns surrounding cryptocurrency are not that great.
It’s mostly the lack of regulation and uncertainty surrounding future regulation that has caused the bear market. Fortunately, this issue is somewhat close to getting resolved.
We fully expect cryptocurrency to rebound once there is certainty about regulation. Most investors seem to support the mission of cryptocurrency – a low fee, borderless, and secure currency.
It’s simply the newness of the entire industry that is causing the bear market. The good news is that cryptocurrency is at a low price due to the current issues, but we don’t know how long that will last before the next bull market.