As many analysts predicted, the considerable price drop that Bitcoin was expected to endure is now in full swing. With the all-time high of the digital currency hitting over $3,000 for the month of June, concerns of a speculative bubble were more than abound, especially since Bitcoin’s primary rival, Ethereum, rocketed up in price as well. Bitcoin fell to about $1,851 and Ethereum to about $135, down 38% and 67% off their all-time highs according to data from fin-tech website CoinMarketCap.com.
This run-up in price was mostly speculative, with the thought process of investors being that their tokens will appreciate after they buy them. There have been numerous speculative run-ups with other commodities before, and thus, the cryptocurrency market now shares a special badge with companies, bonds, and even tulips.
The run-up, driven in part due to large scale adoption of the currency as a method of payment in Japan and massively increased trading volume in Asia in general, signaled a willingness not just of privacy enthusiasts and bullish venture capitalists to buy, but of newer, previously risk-averse investors to do the same.
The sudden rise in ICOs, or Initial Coin Offerings, has also been touted as a significant cause of the increase in the value of both Bitcoin and Ethereum. ICOs, a form of crowdfunding for new services and assets in the digital currency world, have raised over $1 billion worth of digital currencies in 2017 alone, according to Paul Vigna of the Wall Street Journal. Wealthy would-be-backers, eager to be first to get in on the next big digital “thing” will pay huge amounts to get in on the ground floor of new cryptographic projects. One of the largest ICOs, called Bancor, raised over $150 million.
The market for digital currencies has always been quite volatile, without much, or any regulation at all. In fact, one merely needs to look at the historical price data for Bitcoin to see just how wildly it can swing. Things like closing bells, circuit breakers, or even a central authority to guide the market are not a part of in the fast-paced realm of cryptocurrencies.
Bitcoin specifically was designed with this exact purpose in mind: to operate independently of any central regulator or entity. As it continued to become more well-known, even companies like Microsoft, Paypal, and Overstock have begun accepting it. Despite the nearly 40% decline in value, Bitcoin still is worth significantly more than it was at the start of the year and is trading at around $2,300 as of July 18 according to figures provided by Coindesk.com.
While Bitcoin is certainly not without its problems, the key takeaway from these sharp weekend dips and the ones preceding them should be that the market is quite messy and illiquid, even on the best of days.
The Blockchain, which is what Bitcoin, Ethereum, and the rest of the so-called “Altcoins” that make up the rest of the cryptocurrency market, has gained considerable traction as more companies like JP Morgan, Intel, and others find increasingly novel uses for it. The technology, which, by design, keeps individual privacy at the forefront could prove useful in storing records, personal information, or even in elections.
In short, cryptocurrency markets bouncing up and down is about as expected as the sun rising and falling. The uses of the blockchain are becoming increasingly diverse and, as the technology becomes more and more legitimized, you may find yourself using a blockchain application before too long.
“Bitcoin Takes Weekend Slide” – Paul Vigna, Wall Street Journal“
Flash Crashes Jolt Ethereum, Cryptocurrency Markets” – Aidan Lawson, Consumers’ Research
“The Bitcoin Selloff You Knew Was Coming Has Arrived” – Paul Vigna, Wall Street Journal
“While Bitcoin Struggles to Adapt, the Future is Bright for Blockchain” – Aidan Lawson, Consumers’ Research