In the present era, cryptocurrencies had worldwide hype. This is a type of electronic currency with a decentralized form of digital currency which has no set mediator like the central bank or any other single administrator. It’s exchanged and sold online without the help of any intermediates. Although it is quite dynamic and unpredictable and the fluctuations do not really have a set pattern due to which it is quite a gamble. Bitcoin, bitcoin cash, Litecoin, Dogecoin, and Ethereum are some of the most widely known and top ten forms of digital currencies. When this first started, people all over the world were quite enthusiastic about investing in cryptocurrency but recently a nosedive has been seen in the market.
Cryptocurrency has no intrinsic value whatsoever, due to which investors see themselves in a quite vulnerable position. If the market fluctuates, they will be losing big cash. Other than this as there is not a single administrator, things can get quite unpredictable due to that as well. Overall this entire process is quite risky.
There are three groups of people involved in this downfall regarding cryptocurrency. One is which who entered the market and are trading for about $20k and the remaining hoping that they bought it when it was floating at $1k. The other group in the one in which people who have suffered from severe losses and are currently in quite a shoddy position are involved and are looking to recover from their losses by dollar averaging perhaps. The last group is the one who is still enthusiastically involved in the gamble in the hopes of the crypto market hitting off another 20k wave.
The third group that was mentioned earlier is the ones who are taking advantage of the dispersion of the volatile environment minute by minute and are indulged in trading. According to analysts, this creates the “perfect storm of turmoil”. Why is this? The reason is that nothing can be predicted which puts investors in a circle of great disturbance and confusion. Moreover, there is no specific way to predict what’s going to happen to the market in the coming days, weeks or months remains a far-fetched thought.
The solution to this could perhaps be if the entire system was regulated or administered by a single entity, This could calm the storm and handle the volatility making it a little more predictable. On the other hand, Wirex plays the main role in providing and transferring cryptocurrencies amongst investors by providing a rather secure yet instantaneous payment platform for users. Consequently, it is pretty easy to talk about and float around ideas, but this is no easy task to do and not an easy change to bring about. This will take regulators, traditional players and innovators to join hands and come up with an ideal system to bring about stability in the cryptocurrency market.
Is it ideal to invest in
Looking at the nosedive that bitcoin and other cryptocurrencies hit, there is not much sugar coating to be done to say that it is an ideal time to invest in it. Over the last 12 months, major volatility has been seen in the bitcoin statistics. Looking at the behavior of bitcoin in the past months, it is predicted that it could get a pretty steep hit at about $2500, which is quite a low point. The cause as discussed is majorly due to the uncertainty of the market behavior where it is quite hard to predict where the prices are headed. Due to this reason, investors are reluctant to buying cryptocurrency. This has been analyzed by observing the market behavior of the currency over time. Consequently, this uncertainty is here to stay until and unless there is a sole regulator which will further discourage investors to buy bitcoin or other cryptocurrencies.
It is foreseen that this is not really the lowest hit made. There can be much more deterioration in the future. No mature investor is willing to catch that falling knife – say the analysts.
For some reason, bitcoin is here to stay. Regardless of the unpredictable fluctuations and downfall seen, it has still managed to survive. It is believed that such reasons should drive out certain currencies but on the contrary is that being the broadest and most commonly accepted is good enough to make it survive. Due to this, it continues to attract and appeal to buyers and investors.
The effects of falling cryptocurrencies
The major fall seen in cryptocurrencies is not just restricted to that but the economy, in general, is suffering from that. Bitcoin hit its lowest on 20th November and looking and the constant downfall there were hopes for it to eventually rise. This was although not seen and the volatility kept on decreasing over time. The FAANG being, Facebook, Amazon, Apple, Netflix, and Google faced a downfall for about $1 trillion dollars compared to its yearly highs.
The downtrend of crypt markets is continuously seen with $60 billion being erased altogether. It is safe to say that these trends are forcing firms to shut down and walk out due to the low YTD returns and the risk of not being able to put up with capital commitments.
One of the currencies still maintaining its stabilization is the stablecoin with providing a 200% increase during the market sell-off when everything else had hit its lowest. The EURS 24-hour trading volume, therefore, reached a shocking 863.9% the very same day according to the data extracted from CoinMarketCap.
When people suffer from such sharp drops, they need a quick damage control remedy. Instead of trading basic cryptocurrencies like Bitcoin and Litecoin for fiat currencies, they go ahead and buy assets like EURS or TUSD instead as the former would be expensive for them.
The mighty fall
Traders all over the world suffered greatly when bitcoin lost one-third of its value. In total there was a 30% fall in the market leaving everyone shocked and helpless. This was perhaps predicted but it happened during electronic currency was at its peak and traders around did not have any sorts of damage control prepared to bounce back.
Due to the regulatory pressure with cryptocurrency, the downward spiral is something which cannot be avoided. As there is not a single regulator involved in this entire procedure, the government and other security departments such as the SEC (US Securities and Exchange Commission) had to step up and reminded the cryptocurrency market that nothing can be ignored by them and the final say is theirs over anything else. This is not a very unreasonable step as the risk and unpredictability involved in the crypto world is not so safe to play around with which has harvested addicts instead of traders all around the world.
Traders all over the word are pretty concerned and alarmed regarding the fluctuations of bitcoin and other cryptocurrencies. There have been quite notable reforms in the speculations of cryptocurrencies in recent days after having a tough week throughout the developing market which seemingly has potential. According to CoinMarketCap data, the world most renowned cryptocurrency has made a grand jump to $4000.
But this process does not stop here. As earlier mentioned, the unpredictable behavior is quite a hazard as it again dropped down to $3447.58 making the situation for traders and investors even worse. Not long after, bitcoin again helped recover the investor’s losses by reaching high to almost 5.45 percent shortly after the steep low it hit.
Even though the rates rose, they are still definitely not up to their mark compared to their record highs. If we compare it to the time bitcoin reached its all-time high, it has since then deteriorated by a big 80 percent which was 20,000 dollars in December 2017. You can see it for yourself as now its all-time high is 4000 dollars. XPR and ether are the second and third biggest digital currencies and even they reached an all-time low by 90 percent compared to the highest they reached.
The entire market was in shock by witnessing the low volatility of the bitcoin after watching such a drastic stoop when it dropped from 6000 dollars. Worries were constantly building up around a so-called “hard fork” which then further lead to two new bitcoin cryptocurrencies in the market called bitcoin cash.
The reason behind such steep lows is when there is no agreement in the entire community on how to regulate the cryptocurrency system and what measures to take when trading is becoming so wide and common amongst consumers. This mismanagement can also be witnesses with the example of the bitcoin blockchain when it becomes sluggish due to the demand reaching the skies and the entire process starts taking more time with the transaction times taking longer in addition to the fees rising,
These concerns don’t just end there is also a huge concern in itself. The other fear that investors are faced by are the prospects of the regulatory scrutiny and bitcoins constantly falling “hash rate”. This rate is the rate at which a bitcoin “miner” unravels complex mathematical problems which are involved in the transaction. This, in turn, makes it highly essential in the entire process.
Charles Hayter who is the chief executive digital currency comparison site CrytoCompare states that there is a correlation between the hash rate and the overall rate of the bitcoin as both fall simultaneously which seems pretty accurate as this is quite notable and the hash rate is directly linked to the transactions. This basically means that the hash rate gives some kind of an idea about what the underlying opex (operating rate) and capital costs are due to which people give bitcoin a benchmark price because they become willing to exploit to generate bitcoin. This information was given to CNBC via e-mail by Hayter.
Another alarming thing that Hayter states are that people are widely dumping huge servers which they used to mine the cryptocurrency as a result of the falling prices. This information was gained through a notoriously shared social media post which CNBC is unable to identify independently which was basically showing that some person in China is swinging away mining rigs of cryptocurrencies from a mining facility.
Now, what is so alarming about this? It is the fact that when a miner validates a transaction, that is when they are rewarded with a cryptocurrency. Although now individuals are not making profits by mining cryptocurrencies due to the clash between the cost of mining rigs and the falling prices of cryptocurrencies.
This, in turn, proves that even though the system is highly secure, when it comes to digital regulations, loopholes can be found and when they are, the prices drop drastically which then further damages the investors making them suffer from huge losses. Plus, the volatility is highly unpredictable so you never really know when your investment will pay off or if it will pay off at all. Due to this, further regulation by a single regulator is highly encouraged so that the risk is minimized and the investors actually benefit rather than suffer.
The crypto market once again failed to hold on to their high set flight as the further decline of the cryptocurrency continues. If we look at the total market capitalization, it takes a steep hit way down to below $125 billion while still eyeing another new low the same week.
There was some ray of hope seen by the investors when bitcoin took a baby bounce to $4000, but that dream shattered as soon as it began when it dropped again. In just 24 hours bitcoin stumbles from its support again when it declines to $3650 twice and by the sight of it, it does not look like it will further improve but can definitely worsen and cannot hold on again. Even the BTC was down to 7 percent with a selling rate of $3700.
Moreover, looking at Ethereum that too is not much different from the other currencies as that is too dropping as fast as the time is passing and there are no rallies predicted to latch on to. ETH saw some minor gains but the very next day fell down the ladder by 8 percent and is currently at the price of $105. Even the top ten are showing no rays of hope as the cryptocurrencies are going back and forth between 6 and 9 percent on the day. The biggest dump was taken by Stellar. Coming to Monero, it is in a very bad position as it has been knocked out the top 10 by the likes of a new entry.
The updated listings of Coinmarketcap show the inclusion of the Bitcoin SV which has a cap around $1.8 billion, the trading rate is down to 3% and it is also lower than $105. This new entry is on the top 8th position which is just beyond Litecoin and Cardano.
The situation is such that everything in the top 20 rows is red because it is all falling at the average rate of 9 percent or more, for example, Monero, Etherium Classic, Neo and Zcash. The only cryptocurrency which is not stooping down so hard is Nem at the time of writing as the Coincheck reopens.
It is seen that the total market capitalization has been dropped again due to which all the gains gained by the previous rally are now lost making the previous rally not profitable at all. Precisely it has dropped down to almost 7 percent on the day which makes it around $121 billion. The main attraction of the crypto market is the Bitcoin which is failing to hold further support and is in a constant declining phase which is affecting the entire cryptocurrency market. This means that in the coming time, there will be further deterioration and destined decline seen in the cryptocurrency prices. This problem does not stop here but the consequence of this is that the total market capitalization will also fall further easily below $100 billion. By such constant declines, we can sense that it is not the ideal time at all to be trading and investing in cryptocurrencies.
Civil penalties were issued by the department due to the failure of providing securities in the form of initial coin offerings. These penalties were issued to two crypt companies due to this failure. This was a wake-up call for the crypto world to let them know who is boss.
The credibility of these markets has continued to shatter due to the plague of their see-saw-like behavior of volatility even with the introduction of the futures market. Battles have also not been settled due to the control of the smaller crypto operator called the bitcoin cash being the reason behind some of the latest falls.
Neil Wilson attributes to the damaging Bitcoin slump as a blood bath and also questions the trader’s willingness to buy while it in such an inhospitable environment and is showing continuous downfalls and steep unpredicted drops in just a few weeks.
Shoaib Aslam is the co-founder of Pearl Chartered Accountants, a UK-based chartered accountancy firm that has multiple locations across London. They are experts in helping startups and established businesses with all aspects of growth, strategy, scaling up, accounting and tax planning.