The price of bitcoin plummeted last week, falling over $500 (around 5%) in a matter of minutes on September 5th to break through the psychological $7000 threshold. Following immediately in its wake, the value of ripple, ether, EOS, and bitcoin cash took an even larger hit, with all these major cryptocurrencies dropping nearly 10%. While this kind of volatility is not uncommon in the market, it is still unsettling to investors when they see the price of their assets plunge so suddenly. So why are these wild swings in valuation still occurring, and what does the rest of this year likely have in store for crypto investors?
Why These Steep Declines?
Many experts have tied the latest round of steep drops to regulatory uncertainty. Later this month, the Securities and Exchange Commission (SEC) is expected to decide whether or not to open a bitcoin exchange-traded fund (ETF). Because the SEC has previously rejected such approvals, investors may be getting nervous about it doing so again. In addition, Goldman Sachs, which had indicated an interest in opening a cryptocurrency trading desk, may have moved these plans further down their list of priorities, at least given the current environment of regulatory uncertainty.
Another reason many believe the crypto market has performed poorly in 2018 is because of the widespread hype of 2017 and the failure of the market to live up to that hype. The hysteria surrounding ICOs last year led to the failure of over 1000 ICOs this year. Some were complete scams from the outset, designed to rake in money with no real intention of producing a legitimate product or service. According to some estimates, this may have represented over 80% of all ICOs. Others were abandoned by well-meaning companies when the reality of the business environment didn’t stack up to expectations. Many were simply shut down by the SEC due to failures to meet regulatory requirements. Research indicates that only 8% of these companies went on to actually trade on an exchange and deliver to some extent on their promises. Regardless of the reason for all these failures, it was the investors who took the hit time after time after time. It makes sense then, that investors are more wary now of how they throw their money around. Nevertheless, investors have remained ready and eager to put their money into new ICOs this year. In fact, ICOs have raised nearly $12 billion this year, nearly three times as much as was raised in all of 2017!
What’s Coming During the Remaining Months of 2018?
What’s in store for the market during the remainder of this year? For one thing, there are many, many reasons to be optimistic. The failure of many ICOs has led to a great deal of scrutiny on the industry, which is a good thing. Investors are more likely to do greater due diligence on prospective ICOs rather than simply bow to the hype and jump in feet first, eyes closed. Secondly, the market continues to mature. This means that newer companies are entering the space more carefully and more conscientiously than before—putting strong management teams in place, allying themselves with expert outside advisors and consultants, partnering with already-successful companies, creating products and services with significant value, and moving ahead at a more realistic, less chaotic pace. Next, the regulatory environment is bound to stabilize as governments finally establish meaningful frameworks for managing this space. Lastly, there is growing public and industry-wide acceptance of the cryptocurrency market, which opens up new avenues for growth and value.
Strong Positive Trends
Some suggest that the cryptocurrency market valuation will top $1 trillion by the end of this year. Others remain optimistic about bitcoin, confidently stating that it will top $25,000 by year’s end. What are some of the trends underlying this optimism?
For example, LINE, the hugely successful messaging app, recently announced the birth of its own cryptocurrency named LINK. It would be used to pay for content, goods, services, and discounts. In doing so, LINE has become one of the first publicly-trading companies to make such a commitment.
On another front, JP Morgan, the world’s largest investment bank, and Ripple may be in the early stages of establishing a partnership. How this might affect JP Morgan’s existing Quorum blockchain is unclear, but Ripple’s bank-friendly technologies would be a perfect fit for any institution looking to increase both the speed and accuracy of initiating and reconciling its business transactions. But JP Morgan is only one of many prominent banks that see lucrative business opportunities in this market.
While the SEC may not approve its first crypto ETF this year, it is considered to be inevitable, with a 2019 date seen by many as more realistic. This event may not be essential to the continuing success of the crypto market, it would likely have both a profound short-term and long-term effect. In fact, it remains at the forefront of the thinking of most institutional investors, and it is believed that when it occurs, it could well be the catalyst for the market’s next bullish run-up.
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