The Triggers for the Cryptomarket Freefall of Early February 2018February 6, 2018
The gloom and doom in the crypto ecosystem have continued unabated since the end of January 2018. The fall in prices included bitcoin losing more than 70% of its value in a time period of less than 60 days.
The rest of the big cryptocurrencies did not experience any better trading environment. The whole market ended up in the double-digit red zone over a two-day period. Ethereum lost over 30% when it reached the $589 and stayed in the same price range. This erased all of its gains from 2018 when it peaked at $1,433 some 30 days earlier.
Ripple, one of the biggest contenders for the hottest digital currency only a month ago ended up at $0.60 after it reached $3,80 in the beginning of January. The same narrative repeats itself across the board, especially for the top ten cryptocurrencies.
Now, as of February 6, there are some signs that a rally is underway, while the long-term investors and first adopters continue to reiterate that a similar pattern is seen each year. However, the market as a whole seems to be on the fence about this explanation, rightly looking for additional culprits for the huge drop the crypto domain experienced.
The US Events
Two big things happened in the recent days that left an impact on the confidence levels in the crypto market. Firstly, the US financial authorities began interrogating the Bitfinex exchange. Right now, any info on the process is limited, but using the famine mentality, many traders concluded the results can be either neutral or negative.
This alone would produce some higher levels of volatility and open the door to the bearish market. But the second news produced a much bigger negative effect. This news included a group of huge banks in the country deciding to stop their credit cards from being used to purchase bitcoin.
The banks that came to this decision are Bank of America, JP Morgan Chase, and Citigroup. With a huge number of clients between them, the news had a definite effect on the crypto markets. While not many of their giant customer bases use bitcoin for things like online purchases or online BTC betting, it is no wonder it triggered a panic response.
Worse than that, the event seemed to have an immediate ripple effect. This was felt in another big economy, the UK, and its banking sector.
UK Banks Follow their US Counterparts
Just a day after the group of US banks decided to make their move, a group of UK financial institutions basically did the same thing. Lloyds Banking Group, which encompasses Halifax, Bank of Scotland, Lloyds Bank and MBNA stated that its users of credit cards are also forbidden from employing them to purchase BTC.
Both banking groups did this on the same pretense – BTC is volatile, so users are putting themselves at risk of losing money and them using their credit cards to buy more. At the same time, this dubious decision is made even weirder by the fact that all of the banks allow for BTC purchases that use wire transfers and debit cards.
Also, there is the ability to use intermediary services like PayPal or Payoneer, which is also not mentioned with this decision. That is one of the main reasons why the bitcoin development community was so shocked with this move. It is both harmful to the entire ecosystem and makes very little sense. Now, many fear the trend will catch on in places like the EU and begin to erode any confidence that the bitcoin can once more break its previous record.
A new Wave of Chinese Crackdowns
The dread that came from the US and UK credit cards being blocked for bitcoin purchases was the ideal breeding grounds for additional bad news from Asia. Unlike the recent string of bad info coming from South Korea, the most impacting developments this time came from India and China.
In China, reports suggested that the government is looking for a way to put pressure on the digital currency trading platforms that have been moved outside of the country. This happened after the crackdown in the recent period which saw all of them being placed under heavy regulation. Now, a number of them relocated so that they can continue to work and cater to the Chinese market, but without being in the same jurisdiction.
It was to be expected that the government would try to do something to stop this and now it looks like it is geared to put its plan in motion. There is no information how the Chinese government could do the same, but with things like the Great Chinese Firewall, a means is probably already devised.
China is generally advanced in all manner of online ventures, including eSports and native social media, so blocking these exchanges domestically could be a walk in the park. If this does occur, all of these exchanges will have to brace themselves for a big squeeze when it comes to their access to customers.
India Moves towards Harder Regulation
This is also not breaking news, but it came on the top of all other negative ones – India is seemingly moving towards some form of cryptocurrency legislation. In the country, which is not high on the list of either developers or users, a string of scams involving digital currencies and ICOs seems to be forcing the government’s hand.
This is even more relevant now that the country is in the midst of Premier Modi’s push to stem out underground economic practices, including the digital ones. Here as well, the direct impact of such a decision (if it even arrives) is more than limited, but the timing of it fitted in perfectly with the nosedive drop in the crypto market.
Exercise in Volatility
All of these events showcase the overall volatility of the market when it comes to bad news. Right now, the US stock exchange is in its own huge turmoil which would otherwise probably boost the crypto markets as a form of a hedge bet. But now, all of the factors seem to have ganged up on the cryptocurrency prices and managed to bring down the entire ecosystem like nothing that has been seen since 2014.