Bitcoin started the year with a trading value of around $20,000. A little over 11 months later and the original cryptocurrency has lost over 75% of its value. A single bitcoin unit was trading at around $3700 on Tuesday, November 27th. The drop has not only effected bitcoin but taken the whole cryptocurrency market along with it.
Ripple’s XRP is trading at under 35 cents, down from a January high of around $3.60. Ether has dropped from $1397.48 to $104.39. It means both the second and third largest cryptocurrencies by overall market capitalisation are down over 90%. Bad news for anyone investing online in the digital asset class at or near its peak.
The losses mean that bitcoin and all of the other major cryptocurrencies are now significantly below their levels of one year earlier. Last year’s bull run/bubble was started by growing belief that cryptocurrencies would break through into mainstream finance. That belief grew when the CME and Cboe exchanges, both regulated commodities and futures exchanges, with CME the largest in the world, announced they would launch bitcoin futures. They did so but there has since been little to no interest from institutional investors.
Several months ago pressure was also building on regulators to find a way to safely integrate cryptocurrencies into mainstream finance. That pressure has faded along with enthusiasm for cryptocurrencies and the digital asset class looks further away from a regulatory framework than it did a year ago.
The question for traders is now if bitcoin and the cryptocurrency market recovers on investors ‘buying the dip’ or tips into a ‘capitulation moment’ when remaining investors decide to cut their losses. One clue the latter may prove to be the case is that trading volumes have actually been quite high recently. This indicates that selling and not a lack of interest is to blame for the slump.
While it was relatively obvious that last year’s cryptocurrency market spike represented a bubble, the extent of this year’s reverse has caught many, if not all, off guard. Public awareness of cryptocurrencies and the seemingly growing pressure on regulators to come up with frameworks that would make them safer for retail investors and able to become part of mainstream finance looked to have reached a tipping point of no return. Now, however, relative doubt as to whether cryptocurrencies have any real future at all has crept in. If that builds a little more, a further sell off could see bitcoin and its fellow cryptocurrencies become almost worthless. Whether a new cryptocurrency phoenix can then rise from the ashes will remain to be seen.