Cryptocurrencies. Beginning of the end or a new round?
Cryptocurrency markets have collapsed again. For some, this has already become cast iron proof of the imminent death of both Bitcoin and the company. Others insist that the fall of the cryptocurrency market is temporary and natural. So where is the truth? As always, in the middle.
How did the fall start?
The fall began with the takeoff. It happened a year ago, when the price of bitcoin skyrocketed and then dropped as rapidly. This became a point of no return.
This already happened, for example, in 2013, when the Bitcoin price soared from $130 to $1150 and then returned to the initial positions. Digital assets have their own specific features, based on the fact that – and that’s what everybody knows today – the absence of direct reference to the exchange rate, valuable resources, etc.
However, we should admit that the current decline in the exchange rate is one of the most protracted.
What are the reasons?
There are a lot of them, let’s consider the main ones.
- Market overheating
Let’s remember the statistics: at the beginning of January 2015, the price of Bitcoin was $315, in January 2016 it increased to $430, and at the beginning of 2017, it rose again within normal limits. At that time, the price of Bitcoin was just over a thousand dollars.
And suddenly, in November, its price was already at $7,000. Thus, the growth for six months amounted to 600%. And the next month, it reached up to $20,000.
Bitcoin course over the past few years. Source: MarketInsider
Such sharp and positive dynamics is anomalous for any market.
In this case, it is an evidence of excessive investment in cryptocurrencies, revaluation of their investment potential. Correctional movements are direct consequence of this situation. Put simply, the decline. In fact, now the market is returning to its natural state.
Mining of large quantities of coins is very expensive. On average, according to Crescent Electric, it is necessary to spend $7,275 for mining of 1 bitcoin.
Not everyone can withstand these costs, which leads, on the one hand, to a decrease in production and, on the other hand, to an outflow of miners. This reduces the price of Bitcoin and other cryptocoins. In turn, the decline in price makes mining even more unprofitable, increasing the outflow of miners.
The manufacturers of mining equipment also had a problem. Their products are no longer purchased so actively, resulting in trivial overstocking of warehouses.
Hacking and fraud
According to the CipherTrace report, USD 927 million worth of cryptocurrency were stolen in the first 9 months of the year, which is several times more than in the whole for 2017. In short, it looked like this:
In January, NEM cryptocurrencies (positioned as one of the most reliable) worth over USD 500 million were stolen from the Japanese Coincheck exchange. In February, Nano tokens worth USD 170 million were stolen from the BitGrail exchange, which led to the bankruptcy of the exchange itself. In June, Bithumb and Coinrail stock exchanges in South Korea were hacked. In September, Japanese stock exchange Zaif was hacked.
In addition to the hackers, the cryptocurrency exchange add fuel to the flames. Thus, in May, Bitcoin fell in price by more than a thousand dollars based on the message about the presumable fraud of the stock exchange Upbit.
51% attack and cryptocurrencies
51% attack becomes possible when a person holds more than half of the entire network. The last known case of such break-in occurred at the beginning of January this year. The fact of the attack was recognized by Gate.io and Bitfly cryptocurrency exchanges.
Finally, 51% attack on large networks is too expensive to invest in. To compensate for all the expenses, you need to have on your wallet a huge amount of coins for double write-offs, because each subsequent false write-offs will reduce their cost.
51% attack pose risk to the small developing cryptocurrencies and their holders. The networks of such alto-coins are smaller and the number of users in them is smaller too, so it is much easier to “become a leader”. It will not bring significant profit and there will be problems with the sale of stolen coins. But the reputation of the cryptocurrency itself will suffer, moreover, after such attack it may lose all its users and, as a consequence, cease to exist.
The cryptocurrency market is now facing a lot of problems and this article comprises only some of them. In fact, there are more factors that have caused the current collapse.
All of the above-mentioned does not mean that the market will soon cease to exist. At the moment it is in the process of recovering and stabilizing after the wave of an incredible hype.
All these ups and downs of cryptocurrency prices are likely to continue. As long as the market finds the system of operation acceptable for all its participants: miners, investors, the state.
But there is a possibility that this will not happen, neither in the near future nor in the distant future. Then, it makes sense to talk that one day cryptocurrency may cease to exist.
This post is also available in: Russian