Is The Cryptocurrency Market Dying?

Opinion | December 2, 2018 By:

There are more than 1,000 failed cryptocurrencies and crypto-related projects, ranging from scam initial coin offerings (ICOs) to firms that overpromised a blockchain revolution. For every successful coin there are hundreds that didn’t gain traction and caused investors to waste money.

Many people who opened Coinbase accounts and bought Bitcoin (BTC) and other coins during the “gold rush” didn’t really understand how cryptocurrencies and markets worked. This overall confusion likely scared many investors away when prices dropped, causing many of them either to take their gains or cut their losses.

The number of failures isn’t too surprising given the meteoric rise in price of Bitcoin, which brought with it tales of newly-minted crypto millionaires and billionaires. The appeal of all of this new wealth brought out many people who offered new coins and tech with lots of marketing hype, but without anything to back up their lofty promises.

Despite the price drop of BTC this year, it’s still seen massive increases over the past several years. Bitcoin hovered between $550 and $650 in the summer of 2016, and as of July 27 this year it’s up above $8,000. Many investors were caught up in Bitcoin’s move to nearly $20,000 last year, and likely saw articles that talked about the potential for $100,000 pricing in the coming year. The promise of such gains in a short amount of time brought on board many non-professional investors, as it seemed everyone at the water cooler and cocktail parties was talking about Bitcoin.

A Maturing Industry

An analyst at PwC who studies ICOs and the cryptocurrency market as a whole sees the industry maturing and evolving as ICOs become more structured and governments flesh out existing legal frameworks to encompass Bitcoin. Regulation of the main cryptocurrency exchanges is met with some resistance, but it’s needed to prevent hacking, reduce usage by criminals, and reassure the broader investing public. The most famous hacking incident for Bitcoin occurred on the Mt. Gox platform in 2014, before Bitcoin was really big, but that situation is heading towards a final resolution as investors stand to recover much of their funds. Exchanges learned their lesson after Mt. Gox, so there have no similarly large hacks since then.

Governments are moving towards regulating cryptocurrency, which should help improve investor confidence and reduce the amount of fraud within the industry. For example, South Korea announced the creation of a bureau that will tackle cryptocurrency regulation. This move is needed to help prevent stop fraud, and it fundamentally means that government of South Korea considers cryptocurrencies to be a positive (or at least not a negative) form of investment. More countries continue to adopt new laws and regulations to ease the use and acceptance of cryptocurrencies rather than engage in outright bans, which tilts overall global sentiment into more positive territory.

Optimism for Longer-Term Growth

A key indicator for the positive outlook for cryptocurrencies is the usage of blockchains as a base platform for various large-scale projects run by major corporations. These companies don’t invest in such endeavors if they haven’t done research into the technology’s promise and capabilities. This support of blockchain as a platform should keep interest going for the major cryptocurrencies such as Bitcoin, Ethereum, and Litecoin. IBM is diving into “blockchain-as-a-service” by committing personnel and financial resources into building and utilizing various blockchain-run platforms. The other big players such as Oracle, Microsoft, and Google are also moving into blockchain, as none of these firms can miss being the “first to market” for the latest blockchain advancements.

Another positive for the cryptocurrency market is it remains tremendously disruptive. Many economists predict bitcoin and other currencies could replace the US dollar as the global reserve currency, which will greatly disrupt central banks and the entire banking industry. If such predictions come true in the next 10 to 15 years, then BTC and other coins could see swift and consistent gains as the world’s primary currency for international transactions undergoes a complete evolution.

The fundamental appeal of cryptocurrencies and blockchain remains. These coins provide investors with a long-term play that offers diversification beyond traditional stocks and bonds. Investors in the US are looking at cryptocurrency-based IRAs as a way to gain some exposure to the potential gains that are still likely to be had over the long term.