At a time when the outlook seems bleak for the crypto-currency market, blockchain aficionados share their views with this publication.

Could this be the beginning of the end for crypto-currencies? Is the bubble about to burst?

Hundreds of billions of dollars have drained from the crypto-currency market as fears of an escalated regulatory crackdown in China sparked a mass sell-off.

A back-of-the-envelope calculation using data from CoinMarketCap shows that the top-ten crypto-currencies have had around $313 billion shaved off their market capitalisation since 7/1/18, with bitcoin taking the biggest hit as its market value plummeted $119 billion. In total, there are 1,442 digital currencies in circulation with a market cap of around $465 billion. (By the time of publication, however, these figures will likely be outdated due to fierce market turbulence.)

The plunging prices of crypto-currencies across the board began earlier this week after reports emerged suggesting that China would clamp down further on its crypto-currency trade, banning access to offshore digital currency exchanges just months after the nation forced domestic equivalents to shut shop. The Chinese government’s plan has sparked hysteria in the global market, spurring jittery investors to cash out before losses become unbearable. 

Because most online exchanges for so-called “alt coins” – crypto-currencies that are less well-known than the likes of bitcoin with a miniscule market cap in comparison – do not allow users to purchase them using fiat currency, this means any profits booked are effectively stored in another form of crypto-currency, like bitcoin or ethereum, for example, until they are converted back into fiat.

As a result, when the large crypto-currencies crash, any profits that have not yet been converted back into fiat currency begin to dwindle. This often prompts a selling frenzy that inevitably drags the entire crypto market down. 

This appears to be the case, according to Dan Novaes, founder of Current, a blockchain-based platform that aims to tokenise the music streaming industry. 

“There are a lot of investors panic selling right now… this stuff is volatile,” he said. “This is a product of inexperienced buyers coming into the market over the past few months and seeing nothing but gains. When things dip on news such as crackdowns, a dip occurs that turns into even bigger dip because many are panic selling.”


Source: CoinMarketCap.com

In December, bitcoin’s price reached over $20,000. At the time of writing (16:00, 17/1/18), it was trading well below $10,000 and the fall was not yet showing signs of slowing. 

Despite losing around a quarter of their values in the past 48 hours, bitcoin, ethereum and ripple were still up 1,000 per cent, 8,500 per cent and 13,500 per cent, respectively, in the past 12 months. 

Daniel Duarte Figueiredo, another crypto entrepreneur who co-founded blockchain savings company Auctus, remains bullish on bitcoin and expects its price will ultimately recover and could reach unseen highs this year.

“The price dropped because of news related to China escalating [its] crackdown on crypto-currencies and the correction is normal,” he said. “Unless there is some really negative news about the blockchain technology [which underpins crypto-currency transactions], I believe that bitcoin will recover to its highest values and might even break some new records later this year.”

He also explained how bitcoin “is still the entrance to other crypto-currency investments, as in a lot of countries bitcoin is the only crypto-currency you can buy directly with local fiat currencies”. 

Generally speaking crypto-currencies “still have a lot to grow in 2018,” he added, although “maybe not as much as they did in 2017 in relative terms”.

Bitcoin’s value soared as much as 2,000 per cent over the course of 2017, while the market cap of all crypto-currencies had swelled from just $18 billion last January to exceed $750 billion at its peak. It is unsurprising that the latest collapse has given so many new investors cold feet. 

Déjà vu
Yet, with bitcoin, we have been here before.

First came an unexpected, unexplained 1,000 per cent explosion. Then, this was followed by a 50 per cent pullback just weeks later. 

This didn’t happen recently, but at the end of 2013 and the beginning of 2014.

Of course, much has changed since; bitcoin now frequents the headlines of mainstream news outlets and has transformed from a niche thought to be used only by techies and surfers of the so-called Dark Web to a day trader’s play thing after landing on large exchanges used daily by Wall Street in the form of futures contracts.

Still, the same lessons need to be learned: crypto-currencies are a risky bet, and first-time investors looking to make a quick buck would be wise to sleep on it before jumping in feet-first. 

The volatility of the crypto market, showcased so perfectly this week, is a stark reminder of why regulators globally are keeping a hawk’s eye on the sector, and helps explain why authorities in the East, like in China and South Korea, are taking a tougher stance. 

Many may agree with the words of Pan Gongsheng, vice governor of the People’s Bank of China, who this week said: “Pseudo-financial innovations that have no relationship with the real economy should not be supported.”

In the eyes of crypto-currency proponents, they are still the future of money. 

One thing is for certain, though: only time will tell.