Before we go on throwing our coins out of the pot or making further second guesses about a big crash and how altcoins have no value hence the reason their prices now tumbling down, one must understand that the price of such altcoins on the trading market, has a lot less to do with its intrinsic value – but what individuals, and most traders (who seek profit only), believe it to be worth.
So, what is the reason behind the recent downward price spiral? Not much of conspiracy to “ruin the cryptocurrency” other than an expected price correction coupled with some external factors. Punters including ‘corner shop’ setups inflated the price with rampant price speculation – based on nothing more than historic (and a short history at that!) rise of the price of the coin from only a few cents to almost $20 000 each.
The idea of creating an invention that performs a certain function quite soundly and then limiting its supply displays the financial clout of its creator/s. That way, the natural laws of supply and demand would drive up the price of Bitcoin, as it became rarer though needed, but harder to attain (through mining) and as it encroached its supposed 21-million-unit limit.
“The fact that people keep talking today that bitcoin is below 10,000, it’s a disaster, or bitcoin is above 10,000 and that’s crazy. I think the fact that bitcoin is still alive, and attracting so much attention, the fact that we’re talking about bitcoin in Davos with a Nobel Prize winner, a central bank governor and a seasoned investor, I think that’s a powerful tool.” – Jennifer Zhu Scott (Radian Partners principal).
But there are external factors that come into play that affected its speculative price – such as the rise of other altcoins after the split in its technology. Bear in mind that the blockchain code is open to anyone smart enough to develop and run a product on it. So, there is also some kind of a substitution effect as newer altcoins become more specific in purpose and faster in executing transactions. This results in people switching from Bitcoin to the likes of Ethereum-run newcomers like DigixDAO – which are doing well (if rising price is an indicator) and climbing while others lose both intrinsic a speculative value.
External factors including market sentiments do in fact play a huge role in determining the demand for the product or service. In the case of Bitcoin, the closing down of some Exchanges in Asia coupled with an advent of heavier regulation such as mentioned at the World Economic Forum in Davos 2018.
Global leaders pledging to take tougher measures to regulate cryptocurrencies raises cause for concern for people who have a significant amount invested in it.
So, the negative sentiments (also due to the anonymity and dubious intentions, if any, of the creators and not to mention the secrecy it affords criminals) has created a much-expected reluctance by governments and their respective financial institutions to accept its legitimacy.
One such example is the impulse people have when purchasing items that are supposedly on `special` or at a low price.
A 75% discount on a pair of shoes only means the seller has marked it up so much that he or she can still make a small profit when they knock it down by that much! The buyer just sees the price before and what it is after the discount – not knowing it cost the buyer a fraction of both to produce, package and gets shipped to the store.
The true value of ‘the shoe’ lies in the materials (quality) used to produce it for it to last long or give it its level of comfort (its true purpose), and appearance of course. The “brand name and image” in this case can thus be comparable to the speculative aspect of a commodity. So, a pair of pumps would sell (at a higher than normal price) if the likes of Beyoncé or Gal Gadot are seen wearing them. The same goes for sportspeople and the whole multi-million dollar/euro endorsement deals they carry. Their endorsement of a product thus ‘legitimizes’ it.
When global leaders, banks, and financial institutions raise concerns about cryptocurrency – it does the very opposite and sets off the market panic and the selling off we are currently observing.
So, what will happen from here on: provided it is not outright outlawed – which is proving to be difficult as even the South Korean government have now softened their tough stance on the Crypto Exchanges after discovering what a tax ‘gold mine’ they can be – is that the speculative buying will begin again.
Investors who couldn’t purchase Bitcoins at levels above $10 000 will now be seeking an opportunity to enter the market especially if it dips below the $6000 or $5000 mark with the hope to make some profit even if it just pushes back to $9000. Some will hold on and speculate on a return to previous highs – and so the bullish and bearish cycle continues.
Authorities including the delegates at the Davos talks were in agreement, however, that they will want it at affordable prices and at a level that stays relatively stable to even start to consider it as global legal tender. But that will be a long while if traders buy it to speculate in the anticipation of making huge profits.
Those awaiting a total crash or disappearances altogether of Bitcoin, altcoins or the blockchain, however, would have to hold their breaths under the water – but at the risk of drowning! :0)
The technology is indeed a game changer and has already been widely adopted. It will only change form to be partially or fully regulated – but its core functions of better-transacting speed at a low cost and solid security will remain its main contribution to the evolution of banking and fund transfers.