After the peak value of Bitcoin hit $19.7k, it’s now hovering around $5k. This is a large distance from its all time high. The question, ‘are cryptos dead?’ is now a trending topic on Google. There’s a lot of non-believers and general malaise about the future of cryptos and Bitcoin. So what’s the deal? Are cryptos dead? Are we moving into a none crypto future. Read on in this post to find out our views.
The decline of the crypto market
Since December 2017, the price of altcoins and Bitcoin has collapsed around about 80%. For Bitcoin, this has been the second largest percentage collapse in its history. In 2011, the price declined over 90%! Such a history is a hall mark of the crypto asset class that is characterised by boom and bust cycles. 2018 and 2019 have definitely been bust.
So are cryptos dead?
Crypto is not dead. In fact, now is a very good time for crypto. A time of consolidation and building strength at a low base line. That being said, it isn’t certain that the bottom has actually been reached in the market. We are definitely in that period that proceeds a rapid bust cycle – sideways stagnation. Often this is termed, ‘crypto winter‘.
But stagnation is not death.
The causation of the illusion of crypto death
Although there are many different drivers that led to the rise and fall of crypto in 2017 and 2018, a special mention should be given to stablecoins.
A stablecoin is a digital currency tied with a fixed exchange rate to a fiat currency traded on the forex market. Often this is the dollar or the Euro, for example.
The rise of the stablecoin has been due to the fact that coversion between fiat and cryptos is time consuming such as transferring from traditional banks to exchanges and the like. Settlements could often take days.
The conversion between digital currencies is conversely instantaneous. This therefore protects consumers from the volatily of the crypto market.
In 2019 there are many stablecoins, but in 2017 there was only one significant player, Tether. Tether always maintained that it held reserve dollars to back up the fact that 1 Tether = 1 dollar, which has turned out not to be true. Tether thus heavily influenced the price of crypto and it was de facto controlled by the largest crypto exchange in Asia, Bitfinex.
Bitifinex issued crazy amounts of Tether on exchanges and this perfectly matched the pumping of Bitcoin. The issuing of Tether without the coverage of dollar value worked well in this period as they would sell on digital currencies paid for with newly minted Tether for higher prices and replenish the dollar reserves.
The greater the pump in Bitcoin, and Tether issuing, the greater the retail money that flooded the market. This retail money was not from savvy investors, but new traders who didn’t know the risks of the crypto market.
Once the prices of cryptos started to decline the retail market began to get scared and removed their money. They tried to stem their losses from buying cryptos at all time high prices.
The great crypto crash was on!
Panic selling thus then impacted Tether minting as the strategy of issuing lots of Tether and selling higher to replace the dollar reserve no longer worked.
So where do we find ourselves now?
Crypto death, which is more accurately named crypto winter, is beginning to thaw.
Are cryptos dead? – wrapped up
In fact, we are starting to increase our BTC investment position with a prediction that we will break the 10k USD level this year. When the next Bitcoin bull run comes, it will be huge.
In the background, no matter what happens to Tether…crypto and Bitcoin will survive (as it always does). Cryptos are not dead and we are looking forward to the exciting year ahead.