It was inevitable and what comes up must come down. When a graph is competing on exponential growth with the tech boom of the late 90’s or the Dutch Tulip mania then you have to question the “when” not “if” a market will correct.
The incredible bull cryptocurrency run seemed to come to an abrupt end this week and seven-day trading window claimed many crypto trading victims. From triple figure growth in the green to just 24hrs later floundering in the red. However, unusually for this new and memorising asset class, this week was different, there are some credible reasons for the crash.
Usually, in the news for nuclear threats and a comical leader, South Korea seems to at the heart of the sell-off. Investors and commentators pointed the finger towards the regulators in South Korea. One positive and negative at the same time is cryptocurrency exchanges have no regulation or oversight from the government.
Officials inspected 6 Banks and reviewed their operations of cryptocurrency trading. This made the markets nervous about the looming regulation that was pending, pushing Cryptocurrencies Prices lower.
Now, 11/01/18 the South Korean government announced it planned to ban bitcoin cryptocurrency trading and the price corrected by 21%. This is a market that accounts for 30% of the global demand for cryptocurrency and has had a very active role to play in skyrocketing the prices of many coins. The aggressive stance from the nation’s finance ministry queued a sell-off not only from local exchanges but worldwide.
The popular website, CoinMarketCap, announced that they were removing their algorithm from their site that correlated all prices from a variety of exchanges around the world. Firstly, it didn’t really help that they did it without any notice whatsoever but it was because prices from South Korea exchanges were trading at a premium price of 30%.
The internet reacted strongly to this “Right, might be useful to notify people of things like this before or as you execute to avoid crashing the market, thanks,” somebody commented on Twitter. Another investor wrote “Really unprofessional,” another said. “You ought to have announced this many days in advance and given fair warning to people who depend on your website for accurate movements in markets.”
The result; it skewed the average cryptocurrencies prices shown around the globe but it wasn’t a correct representation of the cryptocurrency price. It gave the impression that the market cap was 30% higher than it was any reputable exchange would have been showing a trade price of 30% less.
It is this inaccuracy which has been behind the recent driving force and now price correction of Ripple, going from $1 to $3 back to $1.54 in a month. This adjustment, inherently, has not dropped the price, it merely has amended the price to be more accurate but nonetheless, it caused confusion, rumour and panic and forced investors to sell off. The Tron founder (once 8th in the rankings by market cap) summarised quite eloquently:
South Korea is the 4th largest economy in Asia and not massively prominent on the world stage but they did their best to grab some limelight. The national Tax service raided the offices of Coinone. Police had been investigating and watching the company for over a year and despite cooperation, they are being investigated for tax evasion.
The more well-known exchange, Bithumb which happens to be the second largest cryptocurrency operator in the country and also had a little visit from the tax authorities. Police, as you would expect requested documents and paperwork but subsequently declined to confirm whether they had raided local exchanges and banks with the press.
Its January, there’s confusion and panic and regulation looms. It was simple, cryptocurrencies prices were crashing, and people wanted their money out. Let’s not kid ourselves. Ethereum started 2017 at $7 and finished at $720. Ripple was the largest growth currency at over 30,000% to be seconded by NEM and Bitcoin reached a market cap of IBM at one point. On paper, this bubble has created millionaires, billionaires and solved a lot of people’s (small time) problems and the notion of “quit whilst you are winning” rang true.
Its hard to evaluate the fundamentals of a price boom and market crash but this week showed us its “not what, but when” and in CoinMartcaps PR case, it’s not necessarily “where, but how”, the institutions are and will fight back any which way they can, and people want to protect themselves and profits, understandably. Trade and invest with caution.