It is no more news that the cryptocurrency market is a volatile landscape fueled by speculations and hype. While this assertion defines the present status of the market, it, however, does not highlight digital assets’ main selling point. Maybe crypto practitioners are becoming blind to the fact that crypto has much more to offer than volatility-induced profits. As it stands, the crypto community is easily swayed by fickle price speculations. And this is evident in the recent price downturn of cryptocurrencies, which has propelled mass hysteria, especially from the so-called crypto critics.
This article looks to lay bare crypto’s core selling point and put to bed views that trail the crypto market whenever it hits a roadblock.
The Current Market Condition, Its Perceived Instigator, and What Experts Project
At the time of writing, 1 bitcoin is selling for $7,200, a far cry from the $8,500 it posted at the beginning of last week. As expected, this has adversely affected the price of other cryptocurrencies. Altcoins have experienced a similar downturn, which is a clear indication of the strong correlation between digital assets. Also, this price slump was the lowest in two months. Furthermore, the 15% drop in bitcoin’s price in just a week highlights the well-documented volatility that critics warn against and thrill-seeking traders revel. It is this sort of volatile movement that naysayers use as the yardstick to downplay crypto’s viability.
As such, it was not surprising that the current price trend has generated some interesting but overutilized arguments regarding bitcoin’s failing influence. A report on Forbes rightly analyzed the risks of investing in bitcoin, then took a swipe at its dependence on traditional proceedings, and questioned how easy it was for the market to plunge following China’s raid on crypto-related activities within its borders.
According to Mike O’ Sullivan, the author of the article,
“From the point of view of cryptocurrencies as assets, very basic data analysis suggests that optically bitcoin has a low correlation with safe havens like gold. This does not mean that bitcoin is a good diversifier or a safe haven. It has been highly volatile over the past two years and is subject to trading and liquidity risks not normally associated with safe havens.”
Perhaps, it is true that the negative market trend was a result of China’s intensified effort to rid its economy of crypto activities. Also, there are reasons to question the market’s failure to withstand an unsurprising turn of events, considering China’s history with cryptocurrency. Nonetheless, one could argue that the price slump was inevitable, considering the volume of crypto trading activities recorded in Asia and China’s economic influence in the region. Regardless, this doesn’t justify the conclusion raised in the article that bitcoin is fading away.
For one, this is not the first time that bitcoin is experiencing a bad run as a result of the actions of a crypto unfriendly government. Similarly, it is not the first time that China will take abrasive actions against crypto. Back in 2017, the Chinese government cited crypto’s speculative nature as the core reason for banning crypto-related activities. Shortly after the ban, bitcoin experienced unprecedented price uptrends that led to the bull run. At the height of this boom, a bitcoin sold for as high as $20,000. Therefore, experts are beginning to compare China’s current raid on crypto, and its aftermaths, to the events that trailed 2017’s crypto ban. The verdict reads that the crypto market might experience an uptrend similar to the one recorded in 2017.
Likewise, some have taken to their price projecting tools to predict the outcome of current market conditions. While analyzing the greed and fear index, analysts have projected that the selloff will eventually lead to the transfer of assets from the fickle-minded crypto holders to those who are willing to amass crypto at a bearish run and await the market’s resurgence.
Although this analysis is to an extent reassuring, yet, it plays right into the argument that the crypto market has become addicted to price swings. Hence, Mike O’Sullivan raised a valid point when he stated that:
“My own sense is that cryptocurrencies in general and bitcoin specifically are not safe havens. They have failed the purpose they were intended to fulfill in that they are not actively used as a means of exchange. Few retailers accept them, fewer consumers actively use them and transaction costs are still very high.”
In other words, a large fraction of market participants has fixated on price movements. Crypto has, therefore, become less exciting. Volatility is not enough to bring about a sustainable rate of adoption, this is also true of a bull market. As seen in those trying months that followed 2017’s bull run, new entrants who are all about the price swings will ditch the market at the first sign of trouble. Furthermore, the out of the moon bitcoin price projections, which bullish investors have set as benchmark prices for the future, is not helping. A case study is the bullish predictions that bitcoin would sell for $50,000 by the end of 2018, only to be dealt a cruel blow, as the digital asset plunged to new lows.
Moreover, the price race in the crypto market has distracted the crypto community and developers from the most important things. Instead of focusing on establishing the use case of their products, developers dedicate a considerable amount of their resources to tasks, which ensure that tokens trade on crypto exchanges at reasonable prices. As such, they inadvertently relegate the primary objective of ensuring that tokens fulfill the purpose for which they were created. This notion is evident in the price obsessive nature of the bitcoin community, whereas the major selling point of the coin is its capacity to function as a means of exchange.
The Bull Market Was Both A Blessing and A Curse
Before the bullish run in 2017, the narrative that fueled crypto adoption was that bitcoin and altcoins enabled ecosystems that allow users to make cheap, secure, and transparent transactions. More importantly, they avail users an escape from the failing financial industry, which gives banks and governments an unchecked autonomy over people’s money.
All these factors placed crypto at a strategic position in the unfolding financial revolution. However, note that the disruptive drive that crypto once possessed had since dived following the market slump that trailed 2017’s bull market. Yes, the bull market launched crypto to the global market, but it also hurt its efficacy as an alternative to fiat currencies. The majority of investors who came trooping in during the bull run are here for the money. They have seen how profitable investing in crypto could be, and they aim to get a front-row seat in the next bull market. As such, the crypto community has become obsessed with figuring out when next to expect a bull run, instead of pushing for adoption via the utilization of crypto for their everyday needs.
In another sense, one could argue that crypto is far from being a viable alternative to fiat, as it is still battling scalability issues, which almost always raises the cost of doing transactions. This notion came to the fore after the explosion of the crypto market in 2017. The growing number of participants of crypto networks has stretched the capacity of these networks and exposed their frailties. In as much as 2017’s bull market contributed to the evolution of the crypto landscape, it also sheds light on loopholes that had always been there. Now, developers are left with the responsibility of finding ways to reinstate crypto’s efficacy. As such, crypto networks have undergone various upgrades to speed up the validation processes of transactions.
While this has been the latest trend in the crypto space, the success rate has, however, not lived up to expectations. Innovations like the lightning network have triggered hopes that bitcoin can compete with traditional payment systems. But with the horde of centralized payment solutions coming to the fray, there is a need for developers to hasten the rate at which such systems are deployed. This point of action is the fastest way by which bitcoin can retain its potency as a credible means of payment.
Apart from scalability, there is the issue of price volatility that could stifle merchants and e-commerce platforms’ efforts to adopt crypto as a payment option. Crypto tends to fluctuate relentlessly. Hence, platforms ready to accept it must have the right tools in place to track fluctuations and update their prices as at when due. Owing to the volatility of crypto, a merchant might need to update prices several times a day. This in itself is a hindrance to the mass adoption of crypto, and it will continue to haunt the crypto market until it can maintain some level of stability. Ironically, it is this price spikes that traders – who opt for short-term trading strategies – capitalize on.
In light of this, the crypto community must pick between the benefits of short-term price fluctuations and the long-term benefits of establishing crypto’s payment functionality. From what we have witnessed so far, the community is leaning towards short term profits, and this has limited the growth of the crypto space.
Besides, it is the community’s propensity to focus on the now that has aided the explosion of fraudulent activities perpetrated in the crypto industry. It is without any doubt that the price hysteria of 2017 contributed to the influx of scam projects. Scammers effortlessly sell their lies to greedy crypto enthusiasts through “pump and dump” schemes. Also, there are allegations that crypto exchanges manipulate prices and trading volumes to attract token developers who are looking to list their coins on top exchanges.
What Is the Way Forward?
Cryptocurrency, as a technology, has the disruptive capacity to change the status quo of the banking industry. It presents an average individual – who has no power over his/her own money under the current financial paradigm – a means to evade central authorities and the cost of transacting via traditional payment systems. Although this defines decentralized cryptocurrencies‘ main selling point, it has, however, lost its significance as the market tends to focus on crypto valuation.
And so, to get the crypto adoption train back on track, developers must concentrate on developing crypto with use cases that align with cryptocurrency’s pivotal functions. This involves fast-tracking technologies that will put crypto on par with the new breeds of conventional payment platforms emerging in the tech space, especially in terms of speed and ease of use. While reiterating this argument, Clem Chambers, a renowned columnist, wrote in Forbes that:
“What cryptocurrencies need is a use case. The world is full of para-currencies, stores are full of gift cards for a start. The trick is that those instruments have a use case. The points do something specific or rather enable something specific to be done. That something means those currencies can and will circulate.”
Another way the crypto community can drive the next phase of crypto adoption is to imbibe a culture that values meaningful developments, rather than price swings. By so doing, participants can intensify the growth of the crypto space by inducing a competitive terrain, which has no place for developers with mediocre products.
As well, this culture will suppress – to an extent – the speculative nature of the crypto market. In turn, the prices of crypto might become stable, further encouraging merchants to accept crypto as a payment option. Needless to say, this will also put an end to price manipulations that have since spurred the SEC to disapprove the creation of a crypto ETF.
Note that the arguments raised do not downplay the importance of the bull market or its impact on the expanding crypto market. The last bull run was a culmination of developments that have marked crypto’s rise from a faceless entity to the soul of the financial industry. Likewise, the anticipated bull market will only come to fruition when the crypto community gets its act together and goes back to the basics.