Cryptocurrencies, which at one point in time, were just a buzzword you’d hear in the fin-tech communities have now become mainstream. Awareness levels are at an all-time high and cryptocurrencies have taken media discussions by storm. If you are still getting confused about it, you can check out various cryptocurrency guides available online by sites like CryptoGround. Everyone from late-night talk shows to news anchors are abuzz with excitement about the latest ‘movement of the markets’.
An analysis of cryptocurrency prices over the past year shows us that the crypto-craze can be divided into two parts: the boom phase and the bloodbath phase. Let us take a look at how the markets were impacted during these two phases – the reasons behind the price instability – and the aftermath of the price fall.
The Cryptocurrency Boom Phase:
Cryptocurrency markets attracted millions of users last year when prices were booming. Currencies such as Ethereum boomed by 9,000% and Ripple – perhaps the most successful cryptocurrency of 2017 – boomed by 36,000% over the course of the year. However, things picked steam when Bitcoin crossed the $10,000 mark and practically everyone and their grandmother wanted to invest in it.
Markets boomed and Bitcoin went from $950 to $19500 over the year. This massive growth also attracted a large number of institutional investors and hedge funds started popping up in large numbers. Reports from February 2018 indicate that the number of cryptocurrency hedge funds doubled since the Bitcoin Boom of late 2017.
The Bloodbath Phase
When it seemed like the cryptocurrency bull-run is going to last forever, the markets suddenly entered a slowdown. The first signs were seen mid-December when Bitcoin’s growth rally was stalled and the $20,000 mark was not attained. However a second, short-lived boom in early 2018 saw currencies such as Ripple, NEO and Ethereum performing really well – and Bitcoin dominance fell to an all-time low.
However, from the second week of January, prices of almost all cryptocurrencies began to fall – with Bitcoin leading this fall. Cryptocurrency prices tumbled from one low to another and prices, for some currencies, fell by 75% since they hit an all-time high. Ripple, for instance, went from $3.75 to $0.45, Bitcoin went from $19,500 to $6,600, Ethereum went from $1,300 to $360.
This phase where the cryptocurrency markets are not performing well and are on a continuous decline has been termed as a ‘bloodbath’. This came as bad news followed week after week – which brought a mass hysteria into the markets, causing Fear, Uncertainty and Doubt (FUD) among the investors. This is largely because cryptocurrencies are a sentiment driven market.
A Sentiment-Driven Market
Cryptocurrencies, as stated above, are a sentiment-driven market. Basically, much of what happens to the prices of these currencies is beyond the controls of individuals. A news report in the far Eastern corner of the world has the potential of causing a global impact – such as South Korea, Singapore and India possibly banning cryptocurrencies – brought a major FUD into the markets – causing a large number of people to ‘panic sell’ their cryptocurrencies. When a large amount of disinvestment happens – cryptocurrencies lose price.
Sometimes, sentiments can help currencies grow as well – When the US Securities and Exchanges Commission showed a positive response towards cryptocurrencies – the markets saw a short-lived bull-run. Similarly, when Ripple signed partnerships with MoneyGram and Western Union, the currency witnessed a small boost at each time. Mere rumors of Ripple getting listed on Coinbase resulted in the currency cross the $1 mark! Hence, it is critical for investors to stay up to date with international trends which can help them apprehend a price drop.
Impact on Institutional Investors
While a large number of retail investors have felt the impact of the ‘bloodbath’ phase, the impact has been felt the hardest by the institutional investors. Institutional investors are basically organizations which invest in cryptocurrencies, mostly in the form of hedge funds. Over the past quarter, many of them have suffered losses of about 45-50% on their initial investment.
As we mentioned in the beginning that this attracted a large number of institutional investors towards the markets – this crash resulted in a number of them eventually backing out. These investment firms as well as those who had invested via these firms are facing losses worth millions of dollars – which they hope to recover as and when the prices surge again.
Prince Kapoor is an Independent Marketing Analyst and Blogger. While not working, you can find him in the gym or giving random health advises to his colleagues which no one agrees on :D. If you too want some of his advises (on health or on marketing), reach out at @imprincekapur