The Upside of a Down Month for the Cryptocurrency Market
May 1, 2018
By Chris Burniske, Product Lead, Cryptoassets at ARK Invest
The cryptoasset market has gone through many ups and downs this year. While the month of April was undoubtedly a down month, we see many positives on the horizon:
* Bitcoin Cash (BCH) and Ethereum Classic (ETC) listed on Coinbase;
* The listing application process by Japan’s Financial Service Agency (FSA) began, which could enable more support for crypto assets in Japan; and
* The introduction of ERC20-compliant USD Coin (USDC), which will allow users to exchange US dollars for tokens that can be used on the Ethereum network.
* These developments have been accompanied by an increase in institutional investor interest, evidenced by ICE’s (parent company of the New York Stock Exchange) announcement that it is planning to launch a regulated exchange for digital assets. In addition to its own exchange, ICE is working with Microsoft, Starbucks and BCG on Bakkt—a new platform that aims to make cryptocurrency trading more secure.
It’s been a down month for the cryptocurrency market, but there are reasons to be optimistic.*
*Bitcoin is currently hovering around $6,600 per coin, down from $7,400 at the start of September. The total market cap is at $214 billion. Despite the downturn, it’s worth noting that Bitcoin has nearly doubled in price since this time last year, when it was trading for about $3,600 per coin.*
*The top ten cryptocurrencies by market cap have also seen a decline over the past month. Ethereum is down from $287 to $215 while Ripple fell from $0.49 per coin to $0.29 in September. Other coins in the top 10 include Bitcoin Cash ($500), Tether ($0.98), EOS ($5.53), Stellar ($0.22), Litecoin ($56), Cardano ($0.08), and Monero ($106).*
*There are a number of reasons behind this month’s decline in crypto prices. One popular theory is that traders who have held on to their cryptos since 2017 are selling them off before tax season begins in earnest next year. Another theory involves some of the largest cryptocurrency exchanges in the world delisting coins like Bytecoin and ChatCoin.*
*
The cryptocurrency market sold off in September, but the near-term prospects for the industry are still quite positive. The following are three of the most significant developments in the cryptocurrency sector that have taken place during this period.
Market Activity
A number of factors contributed to the sell-off in September. One is that a number of countries introduced regulatory measures against cryptocurrency exchanges, including China and South Korea. Another factor is that there was a fear of price manipulation on cryptocurrency exchanges, as evidenced by a New York University professor’s report on price manipulation by Tether. Finally, there was a spate of cyber attacks and dishonest trading practices reported on cryptocurrency exchanges. These factors led to a correction in cryptocurrency prices, but they also show that the industry is maturing.
The Future Looks Bright
The market cap of all cryptocurrencies has recovered from its lows, and Bitcoin is trading at $6,600 again — which is where it stood at the end of August. The signs are that this recovery will continue as long as more institutional investors enter the market. It would be very bullish if Bitcoin futures were introduced by major exchanges such as NASDAQ as well as CME Group Inc., which already offers these futures for Bitcoin. These events will likely take place in the near future, which means that
Total market capitalization closed the month at $194 billion, down 33% from the monthly high of $289 billion on January 7. Although this was a monthly loss, it was not as bad as some expected. The total cryptocurrency market has been trading in a sideways channel throughout February, with an upward bias towards the end of the month.
The world’s largest cryptocurrency by market cap, Bitcoin (BTC), closed the month at $9,331, down 25% from the monthly high of $12,475 on January 7. BTC/USD is currently trading around $10,000. Ether (ETH) had a turbulent February and lost nearly half its value from its monthly high of 1,409 on January 13 to close out the month at $735. The second-largest cryptocurrency by market cap currently trades around $840. Ripple (XRP) started February strong, but it slowly fell throughout the month and lost 44% from its monthly high of $3.38 to finish at $1.88 on February 28. XRP/USD has recovered slightly and is trading around $1.95 at press time.
It is a truth universally acknowledged that the cryptocurrency market is down. While some pundits have been quick to declare Bitcoin (BTC) “dead” and proclaim an end to the “crypto winter,” serious industry players are doubling down on their efforts to develop new technologies and bring Bitcoin to the mainstream. The month of May saw significant developments for the cryptocurrency market and several milestones for Bitcoin.
BitPay, one of the leading payment processors for cryptocurrency, announced in May that it had processed a record number of payments in April, at over $1 billion. The news comes as a welcome relief for crypto enthusiasts who had been hit hard by a market downturn in 2018. Although BTC fell below $6,000 again in May, the announcement from BitPay shows that in spite of continued bearish sentiment about cryptocurreny, there is still significant interest in using blockchain technology to make payments or store value.
On May 14th, members of Congress introduced the Token Taxonomy Act to amend existing securities law and exempt cryptocurrencies from being classified as securities. The bill defines “digital tokens” as digital assets that are exchanged solely for goods or services, cannot be used to purchase any goods or services outside of their network, and do not provide profits or other
The month of February saw a small recovery in the cryptocurrency market, with total market capitalization rising from $440 billion to $530 billion.
Despite the recent increase, the cryptocurrency market is still down by more than 60% since January 2018. However, the easing of regulations and increasing institutional interest suggests that the market may be turning a corner.
There are several potential reasons for this recovery. First, the U.S. Securities and Exchange Commission (SEC) released its highly anticipated guidance on cryptocurrencies. While the SEC’s guidance did not approve any particular cryptocurrrency as not being considered a security, it did provide insight into which factors would make a cryptocurrrency more likely to be considered a security. The impact of this guidance is already being felt in the market, with both Circle and Coinbase announcing that their tokens would not be considered securities by the SEC – something that was previously unknown.
Additionally, some major institutional investors have shown increased interest in cryptocurrencies and blockchain technology. For example, Fidelity Investments has announced plans to launch cryptocurrency trading for its clients by March 2018 and Goldman Sachs is considering setting up a cryptocurrency trading desk by June 2018.
Finally, many major exchanges have complied with New York State’s BitLicense requirements, opening up access to institutional investors in
The cryptocurrency market had its worst month since the start of 2018 in September, with Bitcoin dropping 24 percent according to CoinMarketCap data.
As The Merkle’s Cryptocurrency Market Analysis points out, this was a tough month for the market, but there is an upside in that the long-term growth trend remains intact.
“The median return of the top 50 coins ended at -14%, while the top 100 had a median return of -12%. Only four coins (Binance Coin, Waves, ChainLink and Aion) managed to achieve positive returns during September. This confirms that the current bear market is not just limited to Bitcoin,” notes The Merkle’s report.
The Merkle also notes that September was notable for the number of events related to security tokens and stablecoins.
“We saw a lot of activity in this space from companies such as Coinbase, Circle and Coinbase and TrustToken who are building bridges between traditional finance and crypto. We expect this trend to continue in October,” states the report.
The report further notes that there were also developments on the futures front: “In addition, both ErisX and LedgerX launched their physically settled Bitcoin futures contracts. This is important news because physical delivery means these contracts have