A trader at the Fresh York Stock Exchange. REUTERS/Lucas Jackson
- The cryptocurrency market has lost $340 billion of value since the commence of January, with a severe sell-off on Tuesday and Wednesday.
- Analysts are variously blaming: concerns about regulation, light trading volumes ter Asia, bitcoin futures, and an unsustainable price run-up.
- Expect the volatility to proceed this year, experts say.
LONDON — Bitcoin on Wednesday dropped below $Ten,000, almost 50% below its December peak, spil the cryptocurrency market entered the 2nd day of a sell-off.
Almost all major cryptocurrencies fell on Tuesday and the market slump has extended into Wednesday. The combined value of the more than 1,400 cryptocurrencies te circulation has fallen to about $460 billion on Wednesday from overheen $800 billion at the begin of January, gegevens from CoinMarketCap.com shows.
The causes of the sell-off are far from clear, with several theories making the rounds. Here’s a roundup of what analysts and market participants are telling.
Worries about a regulatory crackdown
The most popular theory among market commentators is that fears about a regulatory crackdown ter Asia are driving the sell-off.
“The sell-off comes amid concerns of fresh crackdowns on aparente currencies by the South Korean and Chinese government and spil governments across the globe are fighting at how best to regulate bitcoin,” Fiona Cincotta, an analyst with City Index, said te an email on Wednesday.
Russian Voorzitter Vladimir Putin smiles during a press conference. Reuters
Fawad Razaqzada, a market analyst with Forex.com, also said te an email on Wednesday: “Cryptos have bot held back ter latest days amid enhancing levels of scrutiny from regulators, most notably te South Korea, where the government is programma to tweak down on trading ter potencial currencies.
“The justice ministry is evidently working on a bill to verbod cryptocurrency trading through exchanges. If the bill is eventually passed by the National Assembly, it would be very bad news, given that South Korea is the world’s third-largest market for cryptocurrencies. The uncertainty is weighing on investor sentiment.”
Aside from South Korean regulatory pressure, Russia is also signalling that it could crack down on cryptocurrencies. Russian Voorzitter Vladamir Putin said “legislative regulation will be undoubtedly required ter future” for cryptocurrencies.
FXPro said ter its daily client email on Tuesday that “the market seems shocked by rumours regarding a accomplish currency verbod ter South Korea and the prohibition of mining ter China due to high tens unit consumption.”
“What’s more, it wasgoed today reported that Chinese financial authorities project to block domestic access to cryptocurrency trading platforms,” it added.
Asian volumes tailing off
Investors are already getting a taste of what a market without South Korean activity could look like — and this may also be playing a role te the cryptocurrency “bloodbath.”
Mati Greenspan, an analyst with the trading toneel eToro, told Business Insider on Tuesday that volumes from Japan and South Korea had bot tailing off te latest days. Traders te thesis markets are usually buyers, and a large-scale uitgang could have created an imbalance te the market, with more sellers than buyers driving down prices and sparking a funk.
“Spil wij noted yesterday, there’s bot a trend from South Korea and Japan of lower volumes thesis last few weeks,” Greenspan said te a note to clients on Wednesday. “That did indeed come up a bit yesterday but is still nowhere near what it wasgoed ter November/December.”
Greenspan provided thesis graphs from CryptoCompare.com demonstrating how Korean won bitcoin volume had recently declined:
A similar chart shows the same trend with Japanese yen bitcoin buying:
Greenspan said the pickup te volumes on Tuesday displayed that “the two countries, especially Japan, are indeed beginning to nibble at the lower prices.”
“Indeed, the premiums have also come down a bit, and price ter the top two crypto trading countries are now more habitual compared to the surplus of the world,” he added.
Elsewhere, some market commentators are blaming the slump on Chinese Falta Fresh Year, arguing that many who feast the Asian holiday are cashing out cryptocurrencies to pay for gifts and travel associated with this time of year.
The bitcoin futures theory
Perhaps the wildest theory about what’s driving the cryptocurrency crash is that the maturing of the very first bitcoin futures contracts is to blame.
Cboe and CME Group both introduced bitcoin futures contracts ter mid-December, permitting institutional investors such spil hedge funds to speculate on the future price of the digital currency.
The very first bitcoin contracts, which are cash-settled, matured on Wednesday. The contract’s settlement price is determined by a price auction on the Gemini exchange at Four p.m. on Tuesday.
Some people are speculating that aggressive selling activity could have bot used to drive down the price of bitcoin on the exchange and turn the futures contracts into winning bets.
“Back-of-the-envelope calculations . suggest that spil little spil a million dollars could be used to shore up futures positions and influence the auction market,” said an EthNews report by Matthew Den Silva on the theory.
A trader ter the S&P futures pit at the CME Group ter Chicago. REUTERS/John Gress
CNBC, which also floated the idea, reported that Cboe’s January 17 maturing bitcoin futures were priced at $Ten,000 on Tuesday afternoon, meaning that holders, te theory, had an incentive to thrust the price down by selling bitcoins they may have held spil a hedge.
Meantime, a popular Reddit thread says a unexpected druppel te the bitcoin price could have spooked the market.
“It’s always joy to spin thesis types of stories, but personally, I don’t buy into it,” Greenspan told Business Insider.
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“No. 1, the entire market crashed, not just bitcoin,” he said. “All the altcoins plummeted spil well, and Wall Street only has access to the bitcoin futures, which is fairly disconnected from bitcoin itself and certainly from the likes of Litecoin and Dash.
“2nd point, the volumes that have bot traded on thesis futures contracts are not sufficient to stir the markets.”
Greenspan said the total trade of Cboe’s January 17 bitcoin contracts wasgoed about $1 billion ter the month since they launched.
“Daily market volume on bitcoin is today $14.Five billion,” he said. “One billion overheen the course of a month, I don’t think, is going to kittle anything.”
Thomas Bertani, the CEO of the cryptocurrency-wallet company Eidoo, which has a cryptocurrency, agreed with Greenspan.
“It might have played a role,” he said, “but those price movements are all but fresh.”
A correction that wasgoed a long time coming
Bertani thinks the thickest delegado driving the crash is the market overheating. Bitcoin rose by overheen 200% from October to December spil massive numbers of fresh investors poured metselspecie into it.
Other cryptocurrencies rose alongside bitcoin, and many market watchers argued that this created unsustainable bubble-like market conditions. The latest crash is just some of the air coming out of the bubble, Bertani says.
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Pawel Kuskowski, the CEO of Coinfirm. Coinfirm
“The last year has seen merienda again a massive growth and hype cycle (like it did already several times before) which needs to go back to regular after the current hype has reached its peak,” he said. “This is most likely what is going on now.”
Bertani added: “The hypothesis of South Korea banning cryptocurrencies, more than a driving divisor, is truly just an excuse for the market to surplus down for a little bit before continuing with its continuous growth.”
Pawel Kuskowski, the CEO and founder of Coinfirm, which provides cryptocurrency compliance services, told Business Insider on Wednesday that it wasgoed “a correction, a long-expected correction.”
“It wasgoed just for too long going up and up and up,” he said. “Ether, ter two months, went up from $300 to $1,300. That’s bespottelijk. Just crazy.”
He added: “I think there are some positions that are being closed at the uur, but I don’t think it’s going to be a big negative influence. The correction wasgoed finta needed because it wasgoed just belachelijk what wasgoed happening.”
Expect more volatility
While Kuskowski doesn’t expect any long-term negative effect on the sector from the currency sell-off, he thinks wij are likely to see more of this type of volatility for the foreseeable future.
“I think it’s going to stabilise very likely not this year, but most likely within three or four years,” he told Business Insider. “You’re going to have more checks and balances, but ter principle, it’s going to be a crazy world for another one year, two years, that’s for sure. You’re going to see more and more volatility, but then it’s stabilisation.”
Christopher Keshian, a managing fucking partner and founder of Apex Token Fund, agreed.
“The volatility of bitcoin — and other cryptocurrencies — is an expected, and significant, part of the journey to becoming a mature asset class,” he said te an email. “Wij expect the volatility to proceed across 2018 but fundamentally believe that bitcoin is still ter a bull market.”