Bitcoin is Melting, Again
Bitcoin (COIN), (OTCQX:GBTC) is not having a great week, and it looks like this selloff may get even worse. After a failed attempt at $12K Bitcoin entered the meltdown phase, cratering by roughly 30% in just a few days. Several simultaneous detrimental developments caused this selloff to intensify after the failed technical attempt sparked the negative price action. However, there is one predominant factor that has become the “elephant in the room”. Bitcoin’s apparent loss of popularity could keep prices depressed for a lot longer than many people expect, and we may be looking at a near perfect storm scenario of events that could cause the current selloff to become much worse.
The Binance Hack
One of the elements that helped exacerbate the recent selloff was the Binance hack. It’s not exactly clear what caused the issues at the popular exchange, but what is known, is that numerous users reported their coins being sold off at random, without their knowledge or consent. This led to the speculation that a hack occurred at the crypto exchange, which in turn caused Bitcoin and other digital assets to selloff. Bitcoin cratered by about 7% in minutes following the news.
This Binance hack is an additional problem at a time when Bitcoin is already being confronted with so many challenges. This incident is another example of why more rigorous regulation is needed in the exchange space. But it also creates an additional element of uncertainty and mistrust in the segment, causing many to speculate about the safety of crypto trading once again.
At approximately the same time as the Binance incident the SEC came out with an ominous warning signal to the crypto world. The statement suggested that further scrutiny of cryptocurrency exchanges was needed, and that the SEC was ready to hand out subpoenas to those that did not comply with the new rules. This piled additional selling pressure on top of the Binance news, which caused the selloff to accelerate, prompting Bitcoin’s drop to increase to over 10% in just minutes. This also drove Bitcoin to fall through the all-important $10K mark.
Next, Japan, probably the world’s friendliest market for crypto trading, suspended trading at two of the country’s major exchanges, Bitstation and FSHO. Reportedly, one of Bitstation’s executives used customer funds to conduct personal transactions. And FSHO failed to shore up customer protection. In addition, the country’s financial services agency imposed penalties on five other exchanges, due to their failure to improve security meant to prevent further cyber-attacks.
Loss of Popularity
While the issues discussed above may prove to be transient in nature, there is one notable factor that cannot be ignored. The elephant in the room that is causing Bitcoin’s price to plummet is the apparent loss of appetite for Bitcoin. Ever since the drop occurred from $20K, Bitcoin has been steadily losing its popularity. In stark contrast to what we saw going into year end, financial pundits are paying it very little mind these days, people are talking much less Bitcoin at the dinner table, trading volumes have dropped off significantly, even Bitcoin articles are attracting fewer readers and prompting less commentary.
Everything is pointing to a loss of interest in Bitcoin, it appears that people are “Bitcoined out” a bit. Weather, this will be a transitory or a lasting phenomenon remains to be seen. But what is certain is that sentiment drives price in Bitcoin, and with an apparent loss in popularity sentiment seems to be turning decisively more pessimistic, which is leading to the current price decay.
And it’s not just Bitcoin, the whole cryptocurrency complex appears to be struggling. The cryptocurrency complex’s market cap chart shows that the value of digital assets has declined dramatically since they hit a combined value of over $800 billion. Now the market cap threatens to retest the $300 billion level. If this level fails, it could open the door to panic selling in some of these assets.
But It’s Not All Bad News for Bitcoin
While the short term-picture arguably looks grim for Bitcoin, there are a few favorable developments on the horizon. For instance, there may be some meaningful regulatory breakthroughs in South Korea soon. The proposed legislation aims to legalize Bitcoin and officially classify it as a “liquid asset” in the country. South Korea is a key market for Bitcoin, third only to the U.S. and Japan. Once the regulatory issues are resolved, more liquidity will enter the Bitcoin market, and should create a more stable atmosphere concerning Bitcoin trading in general.
Also, there is the implementation of the Lightning Network, which promises to solve many of the functional inconveniences associated with Bitcoin, mainly scale, speed, and cost. The system appears to be functioning as…