O Lambo, where art thou?
Why has 2018 been so bad to crypto?
Mere months ago we were asking “when Mars?” in Telegram groups — what happened? The answer can be summarised in a few words: Regulation. FUD. Mt Gox. BTC as a market proxy.
Here’s my take on what on Earth (or Mars) is going on with crypto.
Regulation: what’s happening
After the astronomical bull run cryptocurrencies had in 2017, regulators around the world are looking into how to regulate them before they become a threat to the economy.
A G20 meeting is about to take place in Argentina, and Japan has proposed combined action on cryptocurrencies. Each country has a different view so we should not expect this anytime soon but we’ll be hearing a lot about it in the next 18 months.
Many prominent figures have given public statements in the past month, including:
- Governor of the Bank of England Mark Carney made a speech on the future of money: “…crypto-assets raise a host of issues around consumer and investor protection, market integrity, money laundering, terrorism financing, tax evasion, and the circumvention of capital controls and international sanctions”;
- Governor of the People’s Bank of China, Zhou Xiaochuan made a statement regarding the scope of cryptocurrencies: “Bitcoin is not a legitimate form of payment”; and
- United States Secretary of the Treasury Steven Mnuchin said at the World Economic Forum: “My number-one focus on cryptocurrencies … is that we want to make sure that they’re not used for illicit activities”.
Many people in the space do not like centralised powers entering the market. Crypto-ultras have long dreamt of a revolution to decentralise everything. But the establishment is strong, and their self-defence mechanisms stronger still. They know about the revolution and want to be part of it.
Regulation: the impact
It’s only a matter of time until the big boys enter the market with both their money and their regulations but the consequences are still uncertain. We are waiting for mass adoption, but the masses have no skin in the game and can wait it out to see how regulation affects the market.
FUD (fear, uncertainty and doubt): what’s happening
There is a lot of FUD around. Currently the media seems like a carousel of never-ending negative crypto news. Here are just four examples of recent FUD:
- Billions of dollars worth of crypto have been stolen in numerous hacks: $600m worth of NEM stolen from Coincheck; Yapian filing for bankruptcy after losing 17% of its assets; and of course the news that Binanc was hacked.
- Hackers have been running ads online which consume users’ CPU power and electricity, which the attackers are using for mining. Even YouTube was hit by this malware. It is possible that Google, which owns YouTube, has banned crypto ads for this reason.
- Coinbase might be sued for alleged insider trading.
- Credit card issuers all over the world are currently restricting access to cryptocurrency buying.
FUD: the impact
There is nothing worse for any market than FUD. This negativity scares investors. Luckily, as soon there is good news out there, they will forget all about it.
Mt. Gox: what’s happening
850,000 BTC were stolen from the Mt Gox exchange in the infamous incident of February 2014. It took the market three years to recover. The investigation and attempts to refund the users who lost their money are still ongoing.
In February 2018, Nobuaki Kobayashi (Mt Gox’s bankruptcy trustee) sold almost 36,000 BTC and 34,000 BCH. His wallet contains 160,000 BTC and BCH each and he has publicly announced that he has not finished selling.
Mt. Gox: the impact
Needless to say, the dump (and fear of future dumping) has had a negative effect on prices. Everything about this case is creating fear in the market and ind investors are rightly not taking it lightly. To have a sense on how the majority sees this, Cointelegraph created a Twitter poll:
Again, this is a waiting game. Some are in for the long-term and others are waiting for the next bull run; both can wait it out. The problem is for those who were in for a quick buck or couldn’t afford to lose money. For them, it depends on how long they can wait for the next rally.
Bitcoin as a market proxy: what’s happening
Whether you are a Bitcoin maximalist or an altcoin enthusiast, you can’t deny the market follows Bitcoin. There are many reasons for this, which I can get into another time. For now, the following correlation table illustrates how much of a gravitational pull Bitcoin has on the market as a whole.
(Source: https://www.sifrdata.com/cryptocurrency-correlation-matrix/)
Even ETH, the second biggest coin in terms of market cap, has a correlation with BTC of 0.83. In addition, altcoin rates are exaggerated — their prices, and therefore the crypto market cap, rise and fall faster than BTC.
BTC as a market proxy: the impact
For the most part, the public only knows about Bitcoin and therefore its price dictates the rest of the market. When it is down, the market goes down. When it is up, the market goes up.
Conclusion:
We are at the mercy of the never-ending battle between bulls and bears. The bears have been doing a pretty good job lately but no one stays in the driving seat of the market forever.
