It appears that the great reckoning has arrived: the long-anticipated time when Bitcoin and the cryptocurrency market’s excessive hype has run out of steam.
From starting 2018 at a high price point of around $16,000, Bitcoin’s value has now dropped below the psychological mark of $5,000, an event that most crypto enthusiasts did not think would happen, after months of holding at the $6,000-6,500 range.
It’s very depressing news indeed, especially after last year’s remarkable bull run.
However, the public response to the market plunge does not give the impression that any sort of reckoning has arrived. While many average investors are likely operating at a severe loss, the HODLers and big names seem unfazed.
With Ripple now second in market cap and several previously well-performing tokens taking heavy losses, we could be at a point where the market is putting on a new face and entering 2019 with a different personality — one where stability and increased scrutiny on funding and operations will determine how the price plays out, as opposed to what is now largely just the mindset of investors.
Here, we’ll take a look at what some well-known crypto enthusiasts are saying, as well as the general public sentiment. We’ll also dive into what Bitcoin’s future looks like.
Anthony Pompliano Made the Prediction
Anthony Pompliano, a well-respected venture capitalist who is one of the most ardent supporters of Bitcoin and decentralized technology, actually predicted in late August that BTC price could drop significantly.
Pompliano, who has both personal and professional investments in Bitcoin, said that the Bitcoin could fall to as low as $3,000, a complete-180 from a prediction of $50,000 in January. To his credit, he dared to correct himself and realize that the market is far more nascent — 4 years from $50,000, as he said.
In a recent podcast, he, like many long-term investors, said that he sees bear markets as a good thing as “[they] get rid of the tourists so that the true entrepreneurs can focus on building sustainable value.”
When speaking about fund managers who last made a profit in the bull run of 2017, “Pomp,” as he is affectionately called, doesn’t see another profitable run until 2020.
Others Are More or Less Optimistic
Anthony Pompliano is a long-term man through and through, and this sentiment is shared with several other notable figures.
Tom Lee, co-founder of Fundstrat Global Advisers, has brought his Bitcoin valuation down from $25,000 to $10,000 by the year’s end.
Speaking to CNBC, he said:
While bitcoin broke below that psychologically important $6,000, this has lead to a renewed wave of pessimism. But we believe the negative swing in sentiment is much worse than the fundamental implications.
He also sees Bakkt as a part of an important setup in infrastructure for institutional trading, saying that it is a “part of a broader creation of infrastructure necessary for institutional involvement.”
Andreas M. Antonopoulos, much loved by the community, makes a different point:
Whatever your reason for being in crypto, now is the time for:
Lot's of people have lost lots of money recently and it is not helpful to make empty promises, share shitty memes, or criticize others' choices. #bekindorshutup
— Andreas M. Antonopoulos (@aantonop) November 19, 2018
Many had bought into the crypto market at the worst possible time, and Antonopoulos is right.
Now, more than ever, the tribalism and irrational, evidence-absent bickering by crypto community members should be passed up in favor of a more rational, thoughtful approach where people are given a safe and accessible way to enter the crypto market.
Reddit, a bastion of cryptocurrency investors, displays sentiments across the spectrum. For the most part, redditors urge investing no more than one can lose and hodling for the long run. Several individuals have unfortunately lost a great portion of their savings and this makes it all the more necessary that people approach cryptocurrency investing with caution.
Some are also happy to see the market being purged of terrible projects.
As this necessary bloodletting takes place, it’s important to remember Antonopoulos’ words.
Institutional Investors Still in the Game
Institutional investors, meanwhile, are settling in for the long game.
Just as the bear market had begun and Bitcoin had dropped below $6,000, Big Four firm KPMG released a report that spoke positively of digital assets.
While they believe that it a long way from mainstream adoption, they also conclude that the market is too big to ignore, saying:
In 2018, we are seeing a wave of new entrants in the market such as security token platforms, stablecoins, and even established financial services institutions that are launching crypto products and services. Cryptoassets are now impossible to ignore.
However, concurring with the belief of some investors, they say that institutionalization is necessary for the next phase in crypto growth:
Institutionalization is the at-scale participation in the crypto market of banks, broker dealers, exchanges, payment providers, fintechs, and other entities in the global financial services ecosystem. We believe this is a necessary next step for crypto to create trust and scale.
The Role of Bitcoin Cash
An unavoidable part of this whole incident is the hard fork of Bitcoin Cash, now split into Bitcoin Cash ABC and Bitcoin Cash SV (“Satoshi’s Vision”).
The 2 forks are now part of what Brian Kelly, founder and CEO of crypto investment firm BKCM, call a “crypto civil war.”
Some speculate that the fork must have triggered a sell-off among BCH holders, which in turn — as is the case with the crypto market — caused a lot of anxious and trigger-happy investors to sell more, plunging values even further.
There is no way to be certain of BCH’s role in triggering BTC’s plunge below the $5,000 handle. After all, Bitcoin and the market as a whole has been in a tricky situation for a few months now. Perhaps the hard fork was the inevitable nudge that pushed the market lower.
It does highlight one important point: altcoins are suffering far worse than Bitcoin and this is partially because of how reliant they are on it. These bear markets are essentially mass murders, and if tokens drop significantly in value, they could be wiped off the market.
Kelly put it best:
I think all other assets that are not Bitcoin are in the midst of a liquidity crisis. What we’re seeing across the board is asset prices are down 75 percent or more, in some cases 95 percent. We’re now at a point where projects are running out of money. They’re going to need to start firing employees. They’re going to need to cut costs. You’re going to see consolidation, and some of these assets, inevitably, will get marked to zero.
The Flippening and Changing Face of the Market
Under typical circumstances, the fact that Ripple overtook Ethereum in market cap would have received far more coverage, but circumstances being what they are, the news slipped by with comparatively little attention.
Ripple did overtake Ethereum earlier this year, swapping places for short lengths of time. This time though, it seems to have made a stronger swap, and continues to hold second place.
This is interesting for a few reasons. It appears that there is more backing from Ripple supporters than there is for Ethereum, though whether this will remain in the long run is open to debate. The former has been the recipient of a deluge of positive news in the past few months and has some wondering whether it can topple Bitcoin.
Whether or not this specific instance of the XRP “flipping” BTC will happen is, even now, a guessing game.
However, it does point to a larger aspect of the market: BTC’s market dominance, currently still above 50%, may not last for much longer.
This is a good thing.
The reliance on Bitcoin, which has its own set of technical and adoption issues to deal with, means that all tokens are affected by its performance. If the weight of the cryptocurrency revolution is more evenly distributed among a few tokens, then the dangers of loss would become less significant.
One Last Thing: Bear Markets and Funding
As noted by Pompliano, the bear market has consequences for the thousands of projects and ICOs fundraising in cryptocurrency.
As most of these teams have gathered funds in cryptocurrency — say $50 million — in the form of BTC or ETH or their own native coin, the price drops mean that these teams no longer possess the same amount of funds, and one wonders if they have taken into account the occurrence of a severe bear market phase in their planning.
If not, then it could have further repercussions for the market.
If projects lack the funds to continue operations or, worse, pay back investors, then it could damage the market further — though it could also offer the double-edged benefit of weeding the market of projects that have been badly planned.
This is a problem that extends more generally to industries that are reliant on cryptocurrency. As crypto payments become an increasingly popular choice, volatile markets become increasingly consequential. Stability, then, becomes an essential requirement for the market.
Crypto startups too will suffer, as Pompliano said:
[referring to bankruptcy] Then, and only then, will we start to see the capitulation necessary for bear markets to bottom out. The structure of a volatile market like crypto brings many advantages, but the nuances described above are the dark side. Things will get much worse before they get better. That is okay…Watch closely for the founders who are quietly toiling away with talented teams right now…
Will We Finally See Some Stability?
With a wide range of institutional investment, such as Bakkt, around the corner, the hope is that this institutional involvement will open up access to a broad range of investors, many of whom will apply rationale in investing. This could subsequently bring some much-needed stability to the market.
Stable prices would remove many of the worries of investors. Merchants would not have to worry about accepting crypto payments only for the prices to depreciate, and regulators would not exhibit so much concern about volatility affecting investors.
Stability, coupled with technological development, could also see more investors coming into the crypto space.
The hope now for investors is that the steady drip of institutional investment and adoption of blockchain’s practical applications will see them through this rough phase.