Bitcoin and other cryptocurrencies have grown a lot and the wider public is becoming more aware with every passing day. Long gone are the days when the only thing cryptocurrencies were associated with was dark, anonymous, and illegal marketplaces. Today, they are widely recognized for their volatile price movements — making some people some money and costing a lot of people a fortune.
For some, the volatility is a sign of a lack of maturity. For others, it is a great trading opportunity. Regardless of what you believe about the cryptocurrency markets, you should look into these four arguments that are fueling the current Bitcoin bear market.
1. The financial value of one bitcoin is not defined.
Many external factors influence how much something is worth, changing the perceived value depending on the context. This is why you see large investment companies finally making a dedicated move to buy into cryptocurrency, even if the markets have lost about six times of their value over the last year. Institutional investors must be expecting good things to come from their decisions — otherwise, why bother taking action at all?
Banks and investors are not in the game to lose money. They are there to make money. With all of them becoming active and interested, we can have a glimpse into their perspective. They expect good things to happen to Bitcoin or, rather, to its price.
In order to be successful with trading, one must always find an advantage. Buying low and selling high can only help you if you know to identify either one. Bitcoin as a novel commodity for the world is ridiculously difficult to price.
How much is one bitcoin worth anyways?
In the end, trading is always a win-lose game. Somebody has to buy higher than what you paid in order for you to make a profit. Experienced traders understand that the value of things is not inherent to the commodity, stock, or goods being traded. The price is derived from interest, perception, and appreciation of value.
There are dangers of over appreciating a particular asset, which is exactly what happened with Bitcoin last year. Many uneducated people entered the market looking to make a quick buck, only to burn their hand on the stove. They did make a quick buck in the end, but almost none of that ended up in their pockets.
Of course, not everybody was looking to make a quick profit on crypto. Some people making their first investments last year truly believed that that was only the beginning.
2. Regulators are preventing growth
Bitcoin was fortunate to receive the status of a commodity, largely due to the fact that it’s a limited, fungible, and a provable cryptography-based asset. At least for the US, this led to an acceptance by the CFTC, giving the currency its current status.
However, commodities can be used to create investment products, or rather financial products designed to create a profit for investors. These products are not cryptocurrencies and most certainly not commodities. They are securities and fall under different regulations under the authority of the SEC.
The SEC is now being courted by many different banking and investment companies in hopes of creating a public exchange-traded fund which consists of bitcoins and/or other cryptocurrencies. The organization, however, has yet to provide approval to anyone in the space and has been actively pushing back the creation of said funds for quite some time now. This pushback makes for a great argument to support the current bear market.
Without the regulatory support, exchanges cannot publicly provide a financial product comprising of cryptos on the trillion dollar worth exchanges, where undoubtedly many would love to have a piece of the action.
3. There are no use cases
Bitcoin is all about transactions. The problem is, it’s not doing a really great job at handling a lot of transactions. If you were actively trying to use the network during the time it was booming at the beginning of this most recent market cycle last year, you may be looking at waiting times of a couple of days just to get a transaction confirmed.
The reason for this is the constant competition on transactions fees (which are paid to the miners). Miners prioritize transactions that have paid the highest amount of bitcoins to get processed. Wallet providers typically select a fee that will be accepted in the next few blocks, and they usually get these estimates directly from data available on the Bitcoin blockchain. When a lot of people try to transact using the Bitcoin network, the amounts of bitcoins paid in transaction fees gets higher and higher, and your transaction simply gets buried in the backlog to be processed at a future point in time.
Of course, it’s not just Bitcoin on the market, so there are many other use cases covered by other designs — but let’s be realistic. Only a handful of projects can stand up to Bitcoin in terms of acceptance, adoption, and brand recognition. No matter what other significant projects we choose, if Bitcoin’s price is impacted, then it will get reflected on the rest of cryptos.
The lack of a real and necessary use case (you don’t have to invest to survive and its not the only investment you can make) makes for another great argument as to why Bitcoin so bearish right now.
4. After a rally, the market needs to rest
“What goes up, must come down” is the common expectation for many situations in life, and Bitcoin is not an exception. In just a matter of a few weeks, the cryptocurrency markets and Bitcoin markets rallied to boost the price of the commodity three fold in Nov-Dec 2017.
Many of these individuals are still coping with the seemingly wrong decision (if you are bearish on crypto) to invest in the commodity at this period of time.
It is only natural that the market will react to these volatile movements (caused by people just like you and me), and sell, sell, sell. Now, the momentum that led Bitcoin’s price per coin to reach US$20k is gone. The steam engine has boiled the majority of water, and maintenance is in order. A new part of the market cycle has begun, and the winners in these types of scenarios are the most informed and the most patient.
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