Over $100 billion vanished from cryptocurrency markets yesterday as traders sold off their holdings across the board. Bitcoin hit a low of $7,791 before quickly recovering to $9,170 by the close of the day. As of press time, Bitcoin is trading around $8,600 and showing some hopeful signs of stabilization after yesterday’s slide.
Concerns About Price Manipulation and Fraud Send Investors Running
Cryptocurrency has seen some bad press lately. On the U.S. side of the pond, Facebook banned all cryptocurrency related ads, including ads for Initial Coin Offerings, deeming them too untrustworthy to be peddled on its platform. One of the world’s most popular cryptocurrency trading platforms, Bitfinex, is also facing a possible enforcement action by the Commodity Futures Trading Commission related to Tether, a coin issued by the same people who run the exchange.
On the Pacific side, both South Korean and Indian financial regulators are cracking down on cryptocurrency market manipulation and cybersecurity – and for good reason. Just days ago, the Japanese currency exchange Coincheck lost a record-breaking $500 million after a security breach.
Altogether, the recent headlines have raised substantial concerns about price manipulation among major players in the cryptocurrency market. But across the universe of decentralized blockchain currencies, it’s unlikely that any single player wields enough power to shift a market worth hundreds of billions of dollars. In many ways, the regulatory crackdowns that gave rise to yesterday’s selloff are positive signs for the market insofar as they will curb theft and fraud. So, why has bitcoin dropped to a two-month low?
Bear Crypto Market Shows Signs of Healthy Deflation
For many investors, Bitcoin sinking down to near-November price points was just a matter of waiting for the other shoe to drop. A cryptocurrency buying frenzy hit the markets in December, and overall cryptocurrency market capitalization has doubled since mid-November. This is a clear sign of a speculative bubble, and the recent price drop is likely a sign of healthy deflation back down to value-based price points.
Global think tank Ernst & Young recently published a report citing fear of missing out (FOMO) for much of the growth in the cryptocurrency market last year. Some of the most popular new coins – which raised nearly $4 billion through Initial Coin Offerings last year alone – claim their value based on products and services that don’t yet exist. Rather, the coin offering is made to fund promising startups, most of which don’t have much to offer by way of support other than a whitepaper and a roadmap.
Investing in a company without any customers or marketable products is clearly a risk. Most of these companies will eventually fall out of the marketplace as larger, more successful coins expand and take their place. Once this happens, cryptocurrency markets will be less impacted by the manipulation and speculative volatility that has caused many investors to question this emerging market.
Regulators are working to curb price manipulation and fraud in cryptocurrency markets worldwide, and many speculative investors have shed their crypto assets in anxiety over bad press. While this is all bad news for virtual currency markets in the short term, it may be a sign that we are edging closer to a stable, mature marketplace. Although heavy-hitters like Bitcoin and Ether tumbled yesterday, well-known but less value-driven currencies like Cardano and Bitcoin Gold took some of the greatest hits. This is a hopeful sign of healthy deflation in the market overall and possibly the beginning of a bullish year.