Cryptocurrency prices have been tumbling down since the beginning of the year and many have argued the chances of recovery are slim. Our experts explore the potential causes for the declining prices and offer an alternative view on what might seem like a dying breed of digital currencies.
Why have the prices gone down since January? 🤔
Many believe the recent ban on cryptocurrency advertising from the likes of Facebook and Google, as well as goverment intervention and the possibility of infavourable regulations are the main cause for the dramatic price decline of many of the most popular cryptocurrencies such as Bitcoin, Litecoin and Ether.
But what many seem to ignore, is the fact that prices started declining as early as January, long before any of these actions had even taken place. What’s more, the slow and steady rate of decline seems to suggest a different cause altogether, as our Head of Mobile, Ed Cooper, explains:
"I don’t think the recent market movements in the crypto space are particularly related to any current news story. The price swings in crypto that are caused by news stories are generally much more extreme than we are seeing now.
It’s a natural cooling off period following an unprecedented bull run towards the latter part of 2017. This run up was fuelled by speculation rather than technological advances and so many people entered the space drawn by the price headlines only.”
What about the recent price surge? 📈
Last week's price action may come as a breath of fresh air to what has generally been considered a bear market, since the beginning of the year.
However, a look at the total cryptocurrency market cap reveals a 10% increase, which equates to roughly $30Bn worth of funds flowing into the crypto markets.
Historically, it is not uncommon to see prices fluctuating in the range of 20% during a single day of trading. This seems to point out a different cause for the recent bump in price, as Cooper explains:
"Most likely there was a change in sentiment and traders started to buy thus raising the price. In this scenario traders with short positions will start to lose money and liquidate their positions by buying BTC. This causes the price to rise further, more people start to notice the rise and buy in for a quick gain, and the cycle continues."
When can we expect to see growth? 🤷
This is the Billion dollar question everyone is trying to tackle, but in reality, nobody really knows the answer.
Cooper believes that historically, once a price bottom is found, growth prospects start to build as more and more investors attempt to get into the market, thus gradually causing the price to increase:
"We’d need to see a sustained rise over a number of weeks to signal the end of the bear market, we’re definitely not there yet."
What does the data tell us? 💾
Historical price data appears to back up Ed Cooper’s claims, as the combined market cap of all the cryptocurrencies has surged in the last two months of 2017. The amount of money circulating in the various cryptocurrencies has increased more than 4 times from around $200B in November, reaching an absolute high of $830B in early January.
In Cooper's view, a correction was the market’s natural reaction to this rally, as more and more speculators exit in a bid to pocket profits or to limit losses. This, in turn, gives the market an opportunity to consolidate, which may attract more investors as time goes on.
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Has this correction happened before? 🔄
As Ed points out below, major cryptocurrencies such as bitcoin, litecoin and ether have exhibited bearish trends from as early as 2011. Many have since gradually recovered and in some cases even surpassed previous highs:
“We are now seeing a return to more normal trading where the price consolidates and any increases are driven by technological advances and increased adoption rather than the news cycle.
This same cycle of hype and then a return to normality happened in 2011, 2013, and 2017, and will doubtless happen again. Let’s not forget, this time last year ETH was trading at $51, now it’s trading at around $500."
What does the rest of the year have in store for cryptocurrencies? 📆
We believe 2018 will be an interesting year for cryptocurrencies. Increased regulation is expected to add more legitimacy to the crypto space and allow businesses to have a clear framework to work with when dealing with cryptocurrencies.
Also, various technical improvements are due to be adopted or rolled out across several of the different cryptocurrencies this year, such as increased adoption of SegWit (once the new Bitcoin Core wallet is released).
Are there any new Revolut Crypto features inside the app? 📲
On our side, we've made it easy for Revolut users to start building up a cryptocurrency portfolio. Our latest feature, Vaults, allows you to round up spare change from day to day transactions, convert it into crypto exposure and store that inside your Vault. You can think of it this way:
You buy your morning coffee for £2.70 but the amount is automatically rounded up to £3. The £0.30 spare change difference gets converted into Bitcoin and placed inside your Vault.
This means that everytime you spend with Revolut, you add a tiny amount of crypto to your portfolio, without even having to think about it. We'll even give you an estimate how much you can save every month, based on your normal spending habits.
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What our lawyers want you to know ⚖️
The views provided in this article are my own. Our blog posts do not offer investment advice and nothing in them should be construed as investment advice. You should always carry out your own independent research before making any investment decision. You must be satisfied that this crypto offering is suitable for you in light of your financial circumstances and attitude towards risk before starting. The price or value of cryptocurrencies can rapidly increase or decrease at any time (and may even fall to zero). The risk of loss in holding cryptocurrencies can be substantial. Funds received by us in relation to cryptocurrency transactions will not be safeguarded (under the UK Electronic Money Regulations 2011) or covered by the Financial Services Compensation Scheme. We do not make any representation regarding the advisability of transacting in cryptocurrency. We cannot guarantee the timeliness, accurateness, or completeness of any data or information used in connection with you holding any exposure to cryptocurrencies.
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