The digital currency market has been rough for 2018. While we’ve seen meteoric rise of different cryptocurrencies from Bitcoin to Litecoin in 2017, things are a bit different since the latter part of December 2017. In fact, many believe that there is an impending crash waiting to happen.
The entire crypto market today is at $563 billion according to CoinMarketCap. That is equivalent to no less than 3,400 percent increase 12 months ago in the beginning of 2017. But of course, you really have to ask just how far can the growth be sustained?
So let us explore the worst case scenarios. Though we really can’t tell precisely if it is really a bubble similar to the dot-com and housing bubble, let’s take a closer look at this possibility. If it is indeed a bubble waiting to burst, what are the triggers that investors should look into? Julian Hosp, the co-founder and president of TenX, answers some of these possibilities.
Regulations
This is a no-brainer. In fact, if regulators want to ban cryptocurrencies, this can significantly affect how people trade how they protect their desired anonymity from digital currencies. In fact, banning exchanges, for instance, has been proven catastrophic for cryptocurrency prices.
China banned cryptocurrencies in September of 2017. However, instead of a collapsed, people simply tried other places where they can trade. But getting more regulators involved in imposing strict rules could easily dishearten many crypto investors.
Exchanges
Mt. Gox in 2014 controlled 70% of all trading volume. At the year it has suspended trading, it has initiated an 80% cash on the crypto market.
A lot of individuals worry about the same type of scenario today. Though hardly any exchange controls more than 10% of the entire trading volume today, this could still affect the cryptocurrencies’ price. Another usual problem that springs from exchanges is hacking.
Credit Card Use
There are some exchanges that allow users to buy cryptocurrencies via credit cards. Unfortunately, there are instances wherein purchases can’t be paid by the buyer. According to one report, 3 to 4 percent of purchases made on cryptocurrencies via investors couldn’t be paid.
Given the volatility of the prices and if people are relying on the chances of getting profits for them to pay the debt, now this can be a problem. An extended period of sideways movement in price can be bad news for the investor.
Tether
Tether
Another possible cause of a bubble is tether. In order to understand this concept, you have to consider that a market cap of $1 billion doesn’t necessarily mean that everything went into cryptocurrencies. Most likely, a lot less went to cryptocurrencies. Market cap is calculated by simply multiplying the number of tokens by its last trading price.
However, there is an exception to this. Tether gets issued out of nowhere. Tether at the moment is priced $1.6 billion. That is $1.6 billion that went into cryptocurrencies. However, is there $1.6 billion that backs a token? Not necessarily.
Should you stick to your investment or should you sell them now? No one knows really if cryptocurrencies are a bubble waiting to burst. However, keep these things in mind to have an idea when you should push the panic button.
