The price of BTC, and thus the rest of the crypto market with its positive correlation, has dropped nearly 80% from all-time highs reached in December 2017. The past seven days alone has seen a massive decline of 30% in the price of BTC, and it currently trades at around USD 4,5000. There are a wide number of theories and proposals concerning the crash. Nouriel Roubini and Jamie Dimon were swift to assert their earlier positions due to a perceived failure in the crypto market. However, many of these criticisms are unjustified, failing to see the bigger picture.
Price of BTC in freefall – it’s happened before
BTC has dropped from all-time highs by up to 85% before and has undergone a spectacular recovery. It would need to drop under USD 3,000 to reach unprecedented lows. The current price represents a bargain for most investors. However, at the worst possible time imaginable, record numbers of people are said to be selling their BTC, according to the Genesis Trading CEO. And these are not those interested in looking at flipping a bitcoin or two; they happen to be medium-term holders, buying in early 2017.
Long-term holders are holding on to their BTC due to its perceived effectiveness against the corrupt fiat infrastructure. For such individuals, BTC at USD 20,000 is not much different from BTC at USD 4,5000, as the price is arbitrary and largely subject to manipulation. However, they will need to themselves spend and earn crypto to assist in the demise of the financial system. BTC (or any suitable alternative) needs to replace fiat as a means of exchange; this is what counts. Ultimately, it does not matter what cryptocurrency takes the place of fiat, as long as it is fast, secure, cheap, and decentralized.
A variety of unsubstantiated theories
There are multiple theories surfacing about the crash in the price of BTC. It should be understood that only certain regulatory announcements affect the price of BTC. The decision by Bakkt to delay the launch of its bitcoin futures is unlikely to have had any kind of impact. Nor did the BCH hash wars have any effect whatsoever, and there is little basis for such a theory despite wide claims.
The fact is that all stocks (as well as bonds) are in a freefall, especially tech stocks. The crypto market is now intrinsically tied with large traders and institutions, the same kind who are trading tech stocks in particular. When BTC went below a certain threshold, stop loss events were triggered which facilitated the bear market as algorithms sold en masse. Ironically, it seems that cash is the best asset to hold right now, beating stocks and bonds.
BTC and the wider crypto market is a new asset class with few reliable patterns and historical data. While traders and analysts are busy applying theories to the market, the asset itself is unlike any other in some ways. There are no established evaluation metrics for the price of BTC. Additionally, neither the rise or fall in the price of BTC is all that significant. What is significant is the rise of Lightning Network nodes, the high trade volume, the general awareness, merchant compatibility, and overall adoption levels. And these are at historical highs.
Does it really matter?
Ultimately, the rise or the fall in the price of BTC does not matter to those taking a fundamentalist approach instead of a profit-seeking perspective. Adoption and trade volume is what matters, and both of these are at record highs. When people have the opportunity to buy and sell goods and services using crypto sent from their smartphone, they will naturally gravitate towards the superior technology. Cryptocurrencies are going to be intrinsically tied with new forms of government without taxation, tracking, wars, or manipulated money. They are also cheaper, safer, and faster than centralized currencies. The main issue is that segments of the global population are unaware of the benefits or do not have access to the technology.
It is a safe bet that as long as bitcoin futures, custody solutions, algorithmic traders, and institutional investment is involved, they will continue to manipulate the price. It would be naive to believe otherwise, given the sheer amount of scandals in the financial sector involving AML and outright market manipulation such as LIBOR.
Hopefully, the true value of BTC can then be established by pure market principals instead of institutions with algorithms. As it stands, nobody can say what the price of BTC is, as supply and demand is governed by speculators instead of market need. But there are some blockchain hubs and bitcoin states and cities that intend to pull away from the financial system. These hubs will grow in number and stature, and people who believe in BTC will ultimately go to physical locations and online outlets where the asset is accepted as a means of exchange, where possible.
Digital Nomad with an interest in Zen and Blockchain technology.
Law graduate with 3 years experience as a consultant in the capital markets industry and 4 years experience freelancing on UpWork as a Creative Writer.