There is no doubt that blockchain technology is a game changer in today’s world. Imagine a world without the need for third parties to process transactions? However, it is also true that cryptocurrency industry has been struggling since the end of December after Bitcoin was able to reach its near $20K peak. But what exactly made Bitcoin and other cryptocurrencies popular especially in the last 12 months? The reality is that Bitcoin and other cryptocurrencies have been built on online hype.
Reddit discussions and social media are just some of the most common strategies that made the industry so popular today. In fact, given the hype behind cryptocurrencies, some companies have “re-invented” their structure and included words such as “blockchain”, “fintech”, and “cryptocurrency” in order to get the attention of risky investors. There are even those companies that have decided to start their own ICOs in order to come up with funds.
On Thursday, Google announced that it plans to ban anything related to the cryptocurrency sector. And because of this announcement, cryptocurrencies had a sharp downward slide. Market capitalization for the world’s crypto market from $372.9 billion the day before, ended up at $310.4 billion on Thursday morning.
Bitcoin was traded as low as $7,676.52 and bounced back to around $8,300. However, it was nowhere even half its all-time high last December.
A Roller Coaster Ride for Cryptos
There are many reasons why Bitcoin and other cryptos are losing their charm other than the planned advertising ban by Google. First, there was the selling by trustees by the now-closed cryptocurrency exchange Mt. Gox. Mt. Gox closed in 2014 after losing around 850,000 Bitcoins. Mark Karpeles has recently pleaded not guilty for the charges of embezzlement.
A trustee of Mt. Gox has been selling large amounts of bitcoins that the exchange still owned. The reason is to pay back the creditors.
Next, you also have the regulatory scrutiny brought about by different regulators from the different parts of the globe. China, for instance, has already banned crypto activities in the country including ICOs and both foreign and local crypto exchange houses. In addition to this, China has also been monitoring electricity consumption in different provinces in its effort to thwart mining activity.
Thomas Glucksmann, the head of APAC business development at cryptocurrency exchange Gatecoin mentioned in an email to CNBC that “The sell-off was triggered by a number of factors notably, weariness over increased regulatory scrutiny of ICOs, the Mt. Gox bitcoin dump and what seems to be some heavily liquid traders pushing for future buy-back opportunities”.
He also added that “these bear signals have subsequently spooked many new crypto investors who are now looking to cut their losses”.
It isn’t actually surprising that many are already looking to cut their losses by selling their cryptocurrencies. Given the volatility of crypto assets, it isn’t really for everyone. You will need to have a strong risk tolerance in order to handle the swings that Bitcoin and other cryptocurrencies offer. Should you be worried about your cryptocurrency investment at this point or is it simply too early to tell?