The blockchain and cryptocurrency sector has been busy over the past two weeks. Initial coin offerings (ICO) are starting to launch their main nets. In addition, we’re seeing regulatory clarity in the cryptocurrency and blockchain sector.
Bitcoin and other cryptocurrencies declined over the past two weeks. The cryptocurrency sector as a whole lost 18.25%, decreasing from $351.7 billion to $287.5 billion. Bitcoin lost 15.7%, falling from $7,722.53 to $6,510.07. Ethereum, the second largest token by market cap, fell 19.3%. Ether tokens dropped from $619.44 to $499.38 and lost 15.8%.
Reasons for sell off:
- Large growth before Consensus Conference, which failed to provide justification for short-term hype
- Lack of any exceptionally good news otherwise
- Innovations happening at-pace (momentum is not increasing) relative to early 2018
Everyone who bought bitcoin in advance of May’s Consensus conference in New York subsequently sold off after the price appreciation expectation never occurred. This added negative momentum to an already bearish market.
Let’s face it; what goes up must come down. Would it be reasonable to expect anything less than a 70% correction after a meteoric rise that saw the price of bitcoin go from $300 to $20,000 in a year? We’ve seen this movie before.
From 2010 to 2011 the price surged from fractions of a dollar to $30 and back down to $3
From 2012 to 2013 the price surged from $3 to $200 and back down to $60
From 2013 to 2014 the price surged from $60 to $1100 and back down to $300
The loss of momentum is real. The market needs some good news to catalyze a reversal. Contrary to popular belief, our expectation is that it will come from the technological, not regulatory, front.
At this point, the cat is out of the bag: The people who wanted to invest in cryptocurrency already did. The people who didn’t, feel more vindicated than ever and aren’t about to start.
This means, the money that is currently sitting on the sidelines falls into two categories: big institutional players, and slow-to-act retail investors.
We all know the stock market overvaluation adage, “when the shoe shine guy is giving you stock tips, it’s time to sell.”
Thanks to the internet commoditizing access for all, the cryptocurrency version of this is:
Once that stubborn “never crypto” baby boomer tells you he bought his first Bitcoin, it’s over. Time to sell.
This leaves only the institutions. Fortunately, they make up over 85% of conventional market activity.
So, what are institutions waiting on? Regulatory clarity? Yes. But, more importantly, what they need is custody solutions.
The great irony in cryptocurrency is that the very same technological breakthrough that makes it so valuable is also the biggest obstacle it needs to overcome in order to attain market maturity.
If a cryptocurrency wallet can only be accessed with a password, then who holds the password on behalf of a pension or other major institution?
There are some 3rd party custody firms that offer a fancy way around this problem, but the reality is, there is no way to know if they are actually protecting said password in the way they advertise. At the end of the day, you trust some individual(s) to not compromise the delicate system that protects investors cryptocurrency holdings.
Until there are rock solid answers to the custody process, we will be missing out on 85% of the addressable market. Until then, we each have two choices:
- Bulls: See these precipitous falls for what they are: Yet another opportunity to participate in a new wave of innovation at a discount
- Bears: Do what you did in 2011, 2013, and 2014 and cross your fingers that this time it’s actually dead.