Cryptocurrencies have not not had and great 2018 so far and every enthusiast, trader and investor is speculating why. Is cryptocurrency a scam? Is it a bubble? Will they ever recover? are some of the questions that are currently being asked in the crypto-space. Bitcoin came, saw, and conquered! The fascinating new blockchain technology drove hope into many speculators and made a lot of them millionaires overnight. But is this it? Has the largest and fastest growing investment opportunity finally ran out of steam and crashed for the last time. I truly believe that is not the case here and I will show you step by step how these sleeping giants will rise once again to torment all cryptocurrency non-believers.

Also read: How is cryptocurrency and blockchain technology going to evolve the world’s economy?

For the new arrivals in the crypto-space, the rapid fall in the prices of cryptocurrencies may be a huge shock, and has probably set most of them in panic mode and forced them to sell their cryptocurrencies at a small profit or huge lost. But for people that have been in the crypto-space for a few years, this is nothing new. I’m not saying it is a walk in the park, because it’s always a sad moment when the markets are bearish, but it’s nothing that we have not experienced before.

Cryptocurrencies are known for their huge volatility in market prices when compared to your regular stock investments. Especially for altcoins, on any given day you can have a rapid 100% increase in prices or a rapid 100% decrease. It is a roller coaster ride and it has always been like that. When your regular stock will correct in price value by 10%, a cryptocurrency may correct by up to 80%. These rapid changes in price are due mostly to the fact that the cryptocurrency market is a new market, it currently has low volume trades in comparison to the regular stock market, there are more speculators than professional traders in this market,  and it’s decentralised and unregulated by centralized authorities. However, despite all this price volatility, the real truth about cryptocurrency prices is that they just keep growing exponentially overtime. A lot of people looking at the bitcoin charts today would believe that bitcoin price is falling, but that’s because they are looking at a 15 mins or 30 mins chart. When you start to extent the chart to a daily, weekly or yearly time frame, the same charts begin to tell a different story.

Let’s take a closer look at the bitcoin price chart below (Figure 1):

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Figure 1: 4 years of daily bitcoin prices from May 1, 2014 to August 20, 2018; shows bitcoin rapid exponential growth in price with an almost vertical growth line last November. source: poloniex.

This chart is showing the last 4 years of daily bitcoin prices from April 2014 to August 2018, and we can see that over this period of time bitcoin has experience a rapid exponential growth in price with an almost vertical increase during last november. During this time period, there was a 10000% increase in the price of bitcoin, from approximately $200 USD to $19,783.06 USD in just 4 years; no stock in the history of all stock markets worldwide has ever done this.

Usually, in any market, when the price of a stock or commodity experience a huge increase in price, it is followed by what is called a correction, where the price of the stock or asset loses value because some investors who believe that the stock or asset is oversold, proceeds to take their profits by selling the asset. This correction is usually about 50% of the recent price growth of the asset. On the other hand, bitcoin and other cryptocurrencies grows exponentially, which is at a much higher growth rate than your regular stock; this is what leads to the cryptocurrency market having a stronger correction. Bitcoin, as well as other cryptocurrencies, may correct to up to 80% normally. These corrections are very frequent with cryptocurrencies and is also correlated to the price of the cryptocurrency. A cryptocurrency with a value of $5 USD may have these corrections every 1 to 3 months, while more expensive cryptocurrencies like bitcoin may have these major corrections every 6 to 10  months. The bitcoin price chart below (Figure 2) shows examples of these corrections overtime.

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Figure 2: shows examples of bitcoin price growth and corrections over a 1 year period. source: poloniex.

In Figure 2, we can see a 200% increase in bitcoin price from April to June followed by a 60% correction from June to end of July. Another 100% increase is seen from the end of July to the end of August followed by a 50% correction in price. September to the end of October also had a 100% increase in bitcoin price followed by a 45% correction. As you can see, these rapid growth and correction in prices are very common with cryptocurrencies.

When we look at the price record of bitcoin in Figure 3 below, over the last 21 months, we can see where bitcoin is currently still in a correction that started early december of 2017.

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Figure 3: shows the increase in the bitcoin price from December 2016 to December 2017, as well as the correction in the price from December 2017 to the current date. source: poloniex.

As bitcoin and other cryptocurrencies become more expensive, the length of the time periods of growth in price, as well as correction time, will become longer. This is why bitcoin price has taken a longer time to recover from the current price correction. A longer correction of bitcoin price does not mean that bitcoin is dead or will not recover. If we look at Figure 3 closely we can see that bitcoin price has not corrected much more that 50%, which implies that the market is still very strong and could enter the next growth phase anytime soon.


OTHER REASONS


Even though we have recognized these price trends in the bitcoin and cryptocurrency markets in general, we still have to bare in mind that there are other factors that could potentially affect the price of cryptocurrencies negatively. Some of these factors include:

Bitcoin Futures

“Futures are financial contracts obligating the buyer to purchase an asset or the seller to sell an asset, such as a physical commodity or a financial instrument, at a predetermined future date and price.” source: investopedia

Before we had our first bitcoin futures last December, bitcoin was mostly traded on cryptocurrency exchanges such as Coinbase, Poloniex, Binance and Bitfinex. On exchanges, most investors will buy bitcoin and other cryptocurrencies and hold then for a period of time before selling for a desired gain. This strategy motivates investors or speculators to buy and hold the cryptocurrency, which helps to drive the overall price of cryptocurrencies higher. But now, with bitcoin futures, investors have the opportunity to not only bet on the price of bitcoin increasing but also to bet on the failure of the cryptocurrency. This introduces a different mindset, which can initiate a bearish market much easier that before.

Bitcoin ETF

“An ETF, or exchange-traded fund, is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. Unlike mutual funds, an ETF trades like a common stock on a stock exchange.” source: investopedia

ETFs are much more similar to stocks than Futures, as they are traded directly on the stock exchange. The crypto space has been anticipating a Bitcoin ETF for the last year and a half. However, the Securities and Exchange Commission (SEC) has rejected a number of applications for a Bitcoin ETF. An approved ETF would be a confirmation of Bitcoin and other cryptocurrencies’ big break into mainstream, as it would make Bitcoin available to mainstream stock investors all around the world. Because of the huge impact of an approved ETF on the price of Bitcoin, crypto investors tend to respond positively to an ETF application and negatively to a ETF rejection.

In just the last week, the SEC has rejected one ETF application from ProShares and five from Direxion.

The SEC reason for rejecting ProShares’ ETF application is:

“…the Commission is disapproving this proposed rule change because, as discussed below, the Exchange has not met its burden under the Exchange Act and the Commission’s Rules of Practice to demonstrate that its proposal is consistent with the requirements of the Exchange Act Section 6(b)(5), in particular the requirement that a national securities exchange’s rules be designed to prevent fraudulent and manipulative acts and practices.”

And for Direxion’s five ETF applictions:

“…the Commission is disapproving this proposed rule change because, as discussed below, the Exchange has not met its burden under the Exchange Act and the Commission’s Rules of Practice to demonstrate that its proposal is consistent with the requirements of the Exchange Act Section 6(b)(5), in particular the requirement that a national securities exchange’s rules be designed to prevent fraudulent and manipulative acts and practices.”

The Bitcoin Attachment 

The Bitcoin Attachment is my way of putting a name to the concerning attachment of other major cryptocurrencies’ like EOS, Ether and Cardano’s price movement to bitcoin’s price movement. It’s more than a coincidence that when the price of bitcoin falls, almost all altcoins are negatively affected. Bitcoin is the dominant cryptocurrency with currently a 50% dominance and all major cryptocurrency exchanges use Bitcoin (BTC) in more than 90% their currency pairs. This makes bitcoin a central point of exchange from one altcoin to the next, which helps to attach the bitcoin price to other cryptocurrencies. Bitcoin was the first cryptocurrency, is still the most popular, most expensive, and adapted cryptocurrency. These statistics tend to influence the use of bitcoin price as a means of predicting the faith of all cryptocurrencies.

Blockchain and Cryptocurrency is still a new

The idea of blockchain and cryptocurrency is still new. Forbes has reported that a recent survey:

“found that 9.19% of Millennials (18-34) would invest the $10,000 in cryptocurrencies, compared to 4.04% of Generation Xers (35-54) and 3.08% of Baby Boomers (55+).”

In other words, the people that have accumulated wealth over the years (Generation Xers and Baby Boomers) and really have the money to invest in cryptocurrencies, are still more comfortable investing in traditional stocks. Millennials, as expected, are much more enthused about cryptocurrency and blockchain; but, on average, just started working and do not have the necessary wealth to drive the cryptocurrency market into being more stable and attractive environment for investors. Also, more than 90% of millennials still would not invest their money in cryptocurrency and blockchain.

Also read: Blockchain & Artificial Intelligence equals Super untouchable AI

We still have a long way to go before most people understand cryptocurrency and the concept of the blockchain, but the good news it that the trend has been extremely positive and the growth pattern is still outpacing most, if not all other markets. Major companies, like Microsoft, IBM and Goldman Sachs, are investing billions of dollars into blockchain technology each year. The chart below (Figure 4) shows Venture Capital investments in blockchain and blockchain -adjacent startups worldwide from 2012 to late-February 2018:

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Figure 4: Shows Venture Capital investments in blockchain and blockchain-adjacent startups worldwide from 2012 to late-February 2018. source: cointelegraph

 

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Thanks for reading! you can find more posts from me at Cryptoporridge.com.

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