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Has the Cryptocurrency Bubble Finally and Fully Burst?

It’s no secret what’s happened, certainly not this week. A bit like putting too much money on a bet and knowing the result and having to own up to the wife.

Has the Cryptocurrency Bubble Finally and Fully Burst?

Let’s go back a bit… It’s late December 2017, traders, whales and people “in the know” or well researched (however you want to describe it) are coordinating to pump the price of almost every coin and enjoying the profits because of it. By early January, the height of cryptocurrency surge, 30+ digital currencies had market capitalisations of $1bn. Now, one year on nearly and after this week 20% total market drop who knows what’s to come

It couldn’t have come at a worse point in time. The truth is that those who thought cryptocurrencies could be a safe haven in times of financial volatility are and were wrong. A collapse in market value of nearly every digital asset listed comes when mainstream financial markets like equities are cooling, oil price tanking 30% in 6 weeks simple offers traders to reap rewards elsewhere.

“The hype has gone, the punters and trader types have gone,” said Simon Taylor, a former Barclays VP and co-founder at financial technology consultancy 11:FS. It’s a sentiment and feeling many share after this week. Bitcoin, the original and most valuable cryptocurrency, has plummeted from $19,000 in December to pre $4,000 from a stable range of $6,200-$8,000 in the summer.

Bitcoin price chart on November 26, 2018
Image credit: CoinMarketCap

With that in mind, still, most cryptocurrency loyalists still exude optimism. Trading platform eToro, continues to invest and refuses to not scale back its marketing despite the slump, said Iqbal Gandham, Etoro’s managing director. Jordan Fried, vice-president of global business development at blockchain start-up Hedera Hashgraph, which raised $100m from institutional investors, said the speculative rush had provided some legitimate early-stage companies with capital to build services to sustain the nascent cryptocurrency industry. “it’s helping us to build an infrastructure.”

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Notwithstanding market conditions, Plus500 reported a 418% year-on-year rise in earnings in the first quarter of 2018, citing “high levels of interest” in its cryptocurrency products. Both Plus500 and FTSE 250 trading company IG have had to concede cryptocurrency trading interest has in the mass market has started to die “Bust is the word,” said Peter Hetherington, IG’s chief executive. Private investors are holding due to lack of trading knowledge and making the classic fatal error of novices of buying on an up day and selling on down days, inevitably losing money in the process.

It’s hardly surprising when “new” and “innovative” ICOs were in fact scams – breaking trust. “Now we’ve realised that a lot of these tokens don’t power any useful application, and if they do there’s only a handful of users,” said Mr Rauchs. Instead of 39 coins as mentioned, now just 8 coins currently have a $1bn-plus market cap after this week, according to CoinMarketCap. One reason is the lack of incredible “get rich quick” style returns, “The days of investing in an ICO and getting 75x on it in six months are gone,” said Ari Lewis, who opened cryptocurrency hedge fund Grasshopper Capital in August 2017. NEM, NEO, XRP and Litecoin (amongst many others) all showed gains of 5 figure % growth but with lack of volume and high volatility, those days could be dead.

And to this week

The great cryptocurrency crash of 2018 has had its worst week yet and could not be done with as the week opens for markets globally. Bitcoin slipped comfortably below US$4,000 and most of its peers tumbled on Friday with it, extending the Bloomberg Galaxy Crypto Index’s decline since November to 24%. It’s officially the worst weekly slump since crypto-mania peaked in early January 2018.

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After an exciting global rally last year that exceeded many of history’s most notorious bubbles, cryptocurrencies have become $700 billion+ US demise and a destroyer of personal wealth in the process. One man from Australia took out a $127,000 AUD loan at the peak. He’s still holding…  Many of the concerns that sparked the 2018 retreat — including increased regulatory scrutiny, community infighting and exchange closures or investigations — have only intensified this week.

However, the damage is not as widespread as once thought or that it could have been. The total economic impact of the crypto collapse has so far been limited. There is a gradual rise of institutions coming to the asset class but in general, most major banks and institutional money managers have little to no exposure to virtual currencies (relatively). For most professional investors, recent declines in equity markets have arguably been far more important: the US$700 billion slump in digital assets since January compares with US$1.3 trillion lost from the market value of global shares just this week. “Be greedy when others are fearful and fearful when others are greedy.”

Crypto was seen as the new gold with more growth and opportunity, and for a time it was. Gold, a traditional haven for investors, has climbed in the past two weeks as virtual currencies tumbled.

“I don’t think coins are going to be anywhere near as attractive as some of the other cross-asset plays,” Innes said. “Gold prices are going to jump considerably higher and there’s an inverse relationship we’re starting to see with gold and coins.”

It seems old habits and philosophies die hard.

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