Alternative Theories Behind the Cryptomarket Downtrend

Cryptocurrencies across the board have taken a bit of a thrashing over night with the global market cap dropping around $60 billion in 24 hours. Bitcoin trading around the low $8000 mark and Ethereum sitting at just a touch over $600.

The media in general are citing a few different reasons for the downturn – invariably reaching for the easiest ones to explain to their readers it would appear.

Whilst some are indeed valid, many are not as doom riddled as the press might like us to believe and no single reason can or should be attributed to the situation. A few examples and insight into the primary stories in the media today – and a few alternative theories to ponder…

Google Announces Intent to Ban Crypto Related PPC Advertising from its Adwords Platform

For a start the ban is not coming into play until June this year. The ban is not much of a surprise with Facebook having already made the move which had little impact when announced. If anything the ban (at the moment) is no bad thing given the promises made by a number of advertisers that just simply aren’t plausible or possible.

A Mt Gox Trustee Liquidating Significant Chunks of Bitcoin

There is uncertainty around the amounts and schedule of the liquidation as we reported yesterday. Whether it happens now or later, the liquidation will take place regardless and the market knows this – as a result, the market is “prepared” for it as it were and traders will take that knowledge into account.

Giza Scam ICO

Another point we covered this week, whilst scams in any business can have negative effects on the markets, by all accounts the Giza heist is very small relatively given the size of the total market and previous scams. Obviously scams are not good for the industry at all and in no way am I suggesting this one should be treated any differently to any other – but it should be judged in context with the bigger picture.

Regulation Announcements

Regulatory bodies of all shapes, sizes and nationalities have been very vocal in the past week or so including the SEC, the FCA and the IMF – again – all to be expected and long overdue. The media however are for the most part emphasizing the negatives in most cases because it gets more eyeballs. Regulation is needed in this industry if mainstream adoption of blockchain and crypto is going to happen – the problem starts when regulators are low on knowledge of the industry when making statements to the press, and reporters have even less understanding when reporting what they “think” is the correct interpretation.

Alternative Theories

The Investor Base

I’m referring to the type and volume of investors in cryptocurrencies. In the traditional stock markets the investor base is well established primarily due to how long the markets have existed for. The investor base is heavy with institutional traders and very experienced investors. The crypto market investor base is very different – a large proportion is inexperienced, young, and arguably “gambling” as opposed to investing. This, coupled with the relatively very small number of what could be regarded as “institutional investors” means the current investor base will be (and is) prone to “knee-jerk” or “panic” selling at the slightest bit of bad news. It will pass as the market develops of course.

Aliens

As insane as the suggestion might appear, SETI suggested the hunt for extraterrestrials was being hindered by the demand for GPU’s by cryptocurrency miners - forcing up the price of graphics cards. The reality is this is nothing new and been going on for a couple of years. The market downturn could just as easily be attributed to the price of crypto mining equipment if the press were so inclined (it isn’t, and no, I haven’t found alien life either).

The Reality?

It all comes down to the “balance of the F-words” - FUD (Fear, Uncertainty and Doubt) vs FOMO (Fear Of Missing Out). When the media publishes more FUD related stories the level of potential FOMO will drop also and subsequently trigger sell-offs by the relatively new, young and inexperienced investor base.

Bottom line – the world is not ending, the market isn’t going to evaporate. This isn’t the first red day in the markets and it won’t be the last.

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Created: Thursday, March 15, 2018

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