The honeymoon’s over: Bitcoin topples

Published on the 19/01/2018 | Written by Jonathan Cotton

Bitcoin marketshare topples

Panic in Asia spreads to rest of the world as South Korean government vows to get tough...

From it’s high in January 2016, it had been gaining steadily for months hitting its record US$20,000 per token high in mid-December. Then came a December dip and modest recovery, now Bitcoin’s value has dived, sinking as low as US$9,200 by some estimates, effectively halving value in the space of a month.

Currently the cryptocurrency is hovering around US$11,500. All up, that’s US$100 billion worth of value gone.

The off-load comes in the wake of the South Korean government’s Monday’s threat that, as far as it was concerned, “Cryptocurrency is not a legally recognised currency”.

Initially the South Korean authorities proposed the full shutdown of exchanges before changing tune, clarifying that the justice minister’s announcement was just “one of the measures suggested by the justice ministry to curb speculation”.

The seeds of doubt were already sown however, investors were spooked and the great sell-off was on.

Though unusually vocal, South Korea is not the only country preparing to start playing tough the rapidly-multiplying cryptocurrency market. Chinese authorities – among others – have announced that they intend to put an end to the domestic virtual currency trade.

In a memo detailing a meeting of regulators, People’s Bank of China Vice Governor Pan Gongshen reported that the conference “clearly called for limiting ‘innovations’ that deviate from the need of the real economy and escape regulation,” according to Reuters.

“Pseudo-financial innovations that have no relationship with the real economy should not be supported,” he said.

Russian President Vladimir Putin said last week that legislation will “definitely” be required in the near future and the U.S. Securities and Exchange Commission and European regulators have similarly issued warnings about rampant Bitcoin speculation.

Of that there is plenty. Bitcoin was valued at around US$1,000 last January. Almost a year of rampant speculation later, by December that number had skyrocketed to US$20,000.

Now, more than US$30 billion has fallen off Bitcoin’s market value within the last 24 hours, with the collective market capitalisation of cryptocurrencies globally dropping by more than US$200 billion since Tuesday.

And some are expecting the fall to continue. Citigroup analysts are predicting it will continue to slip as far as US$5,600.

“High volatility has always been there,” said Donnie Krassiyenko, senior market analyst at IDC New Zealand. “My view is that South Korea wants to protect its citizens from losing their funds – after all, nobody really knows where the market is going – but I think there is also a geopolitical component as well.”

“At the end of last year there were reports of North Korean cyber-attacks on South Korean exchanges, with one exchange claiming they had lost about 17 percent of their assets.”

Furthermore, countries like China and Russia likely have plans for their own state-approved cryptocurrency, meaning they’ve got every reason to interfere with the first-to-market option.

“I think those governments are trying to protect their own state interests,” said Krassiyenko.

“Obviously they would like to have some sort of market share when they are ready to do so and the best way to do that is to slow down investment into cryptocurrency by limiting the use of exchanges.”

While the crash is happening on the cutting edge of Blockchain technology, Krassiyenko argued that the dramatic reversal of fortunes is market-business as usual.

“With any uncharted waters there is always uncertainty,” he said.

“Whenever there is this much interest in the space, eventually you will see an inflow of participants who probably shouldn’t be there in the first place; People looking for short-term gains based on the stories of how ‘Average Joe becomes super-rich by buying one Bitcoin back in the day’. There’s pretty obviously speculation of that type going on here.”

Contributing to Bitcoin’s woes is a market rapidly reaching saturation, as score of imitators – often playing fast and loose in an unregulated industry – look to take the advantage that even a moderately successful cryptocurrency could afford.

“At the moment there is probably a few too many [cryptocurrency options] out there,” agreed Krassiyenko.

“1500 are currently available so there has to be some market consolidation done at one point or another. Probably after this current decline some of those currencies will disappear, having realised that there is no sustainable value behind them. Others, on the other hand, can use this as a turning point to mobilize their efforts and innovation in this space.”

For now we’ll have to wait and see how – and if – Bitcoin recovers, and wait to see what triggers the next peak or panic.

One thing’s for certain, this is no-doubt the start of the government intervention, not the end of it. Whether that helps – or hurts – the cryptocurrency market in general is anyone’s guess.


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