Decrease in the crypto-currency market. Collapse or transformation? Alexander Sivtsov
In this article, we’ll figure out what happens to the most volatile market, which in the second half of 2017 demonstrated phenomenal growth. How to explain such a sharp decline in the market of crypto currency?
Crypto-currency market declines. Causes.
In the second half of January 2017 the market of crypto-currencies went down, while the most popular crypto currency in the world Bitcoin fell by more than 65%. This reduction was contributed by several reasons that we will analyze below:
1.) The speculative price.
The first main reason for the decline in the price of crypto-currency, in particular Bitcoin, is its speculative growth. Nothing lasts forever, especially the price change for this or that financial instrument under the pressure of speculation in the market. Fixing profits and selling an instrument that demonstrated simply not real growth in a short period of time is an integral part of trading.
2.) Tougher regulation of trade in crypto currency.
Back in January 2017, regulators from around the world began to talk about the need to introduce tough trading conditions on the crypto-currency market in order to avoid high volatility due to significant speculation. The loudest statement, which is still being discussed, was South Korea’s statement that, if necessary, the government of the country will take tough measures against crypto-exchanges, until their closure. This statement by the authorities of North Korea had a very significant impact on the market of crypto-currency due to the fact that North Korea accounts for about 20% of the volume of trade in crypto currency.
China made a statement as well. In early February, it was reported that the Chinese authorities plan to block websites for trading in crypto-currencies.
3.) Theft of the Crypto-currency.
With the increasing popularity, as well as the cost of various crypto-currencies, the cases of their theft as a result of hacker attacks on the crypto-instruments and fraudulent schemes in the ICO process have become more frequent. No one knows the exact number of stolen or missing digital money as a result of system failures, but this state of things clearly does not suit investors. As a result, at least large investments in crypto-currency business in the near future may not be.
4.) The lack of a centralized management system.
Most crypto-currencies have a decentralized management system. In other words, bitcoin is just the code that is on the network, and not on one or several central servers. The decentralized management system allows the crypto-currency to avoid the influence of a particular governing body, but in the modern world the lack of control can only provoke distrust among a significant part of the population.
5.) Wrong view on the crypto currency (reduction of investment).
Once again, let us return to the human factor. Many investors saw Bitcoin as a means of quick profit and tried not to miss their chance to make money, which is why today the price of Bitcon and other crypto-currencies is declining. One should not expect a significant increase in value of digital money, as well as it will not be possible to receive profit from investments.
What awaits the market of crypto currency in the future?
Many cryptosystems already speak of the complete collapse of the crypto-currency market and the reduction of the value of digital currencies to zero. Nouriel Roubini also joined the similar opinion, who predicted the financial crisis in 2008, calling Bitcoin the father of all the bubbles. In his judgments, Nouriel Roubini misses one point that the growth of the market of crypto-currency, due to the high investment attractiveness, has led to the creation of very large miners’ farms, which in the future can turn into a system for the operation of crypto-currencies. Also, one should not lose sight of the fact that blockchain technology opens new prospects for the development of world-wide cash flows due to its speed of operation, bypassing intermediaries. Of course, the main goal of creating a crypto currency is to avoid the established power of banks, but most likely in the near future it will be possible only to achieve the introduction of the use of credit in banking.
The recent words of the head of the ECB Mario Draghi that crypto-currencies are very risky assets, can naturally cause only concern in the market. Draghi stressed that the appearance of Bitcoin futures in the market may in the future push European banks to open positions in the crypto currency, which will attract a new wave of investment in the market.
It is worth noting that this decline in the market of crypto currency is its transformation of the use of digital money in the future. The introduction of various restrictions and tightening by regulators is, most likely, the process of taking control of the market, and then the market will begin to develop, perhaps at a more restrained pace. But, in the long run it can reach more significant heights.