FinTechBlockchainIs crypto price instability a warning sign for potential investors?

Is crypto price instability a warning sign for potential investors?

Dramatic fluctuations in the price of cryptocurrencies such as Bitcoin and Ethereum are likely to give wary investors the jitters - but is this instability merely a short-term phenomenon that could dissipate when the technology finds more mainstream adoption?

Over the past couple of years, cryptocurrencies have become a hot trend. The number of digital currencies on the market has grown exponentially, while popular coins like Bitcoin and Ethereum have been talked about in every media outlet. But as with most hyped things, the mania fades. As is shown here, the market prices of Bitcoin and altcoins alike have started to crumble. Will the demand for cryptocurrencies decline to a point from which it cannot recover?

At present the market value of all the different virtual currencies sits at around $211bn. That is about where the market was before the huge Bitcoin rally last December. To many devout crypto enthusiasts, this is an unsettling state of affairs. After the boom last winter, many people expected the value of cryptocurrencies to continue to go up in 2018. They expected the boost in Bitcoin’s value to enhance the value of altcoins across the board and encourage the creation of many new, successful digital tokens. Yet, none of this has happened. In fact, Bitcoin has increased its market share despite volatile prices because altcoins are struggling even harder. Even Ethereum, which was once predicted to actually overtake Bitcoin as the number one cryptocurrency, has suffered devastating losses.

Financial institutions are getting on board

Many governments have expressed favorable views about cryptocurrencies. Crypto enthusiasts were waiting for this to happen in anticipation because this sort of affirmation would seemingly attract institutional investors. Yet, the demand for cryptocurrencies has not gone up, despite what most people predicted. At the moment it seems like the cryptocurrency industry is about to hit rock bottom – but this might not be the case.

One good sign is that major Wall Street players still have faith in Bitcoin. Just in October 2018, TD Ameritrade and CBOE both expressed support for ErisX – a futures market that supports Ethereum, Litecoin, Bitcoin, and Bitcoin Cash. It is possible that this development could make it more appealing for institutional investors to get involved with cryptocurrencies. This would increase market participation and the demand for these tokens.

Prices stabilizing?

Recently, the price of Bitcoin has been stuck around $6,400. Every time it moves up, it dips back down. Most altcoins have fared even worse. To some, this suggests the demand for cryptocurrencies just isn’t strong enough. If investors believed that Bitcoin could bounce back, they would buy the coins now when the price is low. Yet, this is not what is happening. However, this issue might suggest that the Bitcoin price has started to stabilize. Thus, the stagnation is not necessarily a sign that the demand for Bitcoin is gone.

On the other hand, we might just be in a waiting game. Interest and demand are only part of the equation. The consistent problems with the cryptocurrency industry have been scalability and applicability. Slowly but surely, major cryptocurrencies are addressing these issues. They are finding better ways to increase their ability to scale, and they’re finding ways to encourage mass adoption. The future may very well be led by a decentralized, peer-to-peer currency and not fiat currency. However, the transition is not happening as quickly as some people might expect. It is going to take time for enough vendors and merchants to accept cryptocurrencies as a payment option so that people can reliably use digital tokens to make everyday purchases. Transaction fees have already decreased by massive amounts, eliminating another major roadblock facing cryptocurrencies.

Ecosystem is enhancing

Meanwhile, the infrastructure is slowly improving. Blockchain networks will be able to handle higher volumes; the liquidity and scalability problems will eventually sort themselves out. There is a good chance that when blockchain networks become more efficient than they are now, the demand for cryptocurrencies will rise naturally. It is easy to forget that the cryptocurrency market is still young. There are going to be ups and downs, and there are going to be roadblocks along the way. It takes time to work out all the kinks. Research, analysis and development do not happen instantaneously.

Consumers and investors alike are going to pick the option that is easiest and most convenient for them. Right now, many still consider fiat currency the better option. If the technology in the cryptocurrency industry continues to improve, public perception may change. There is already a loyal group of cryptocurrency users, but more and more people might start to jump on the bandwagon if they believe they can save time and money. Only time will tell if developers can make cryptocurrencies appealing enough to disrupt the fiat market and turn it on its head.

Demand for cryptocurrency is still there

While the hype around cryptocurrencies has definitely died down, this does not necessarily mean that the demand is not there. There are many institutional investors that are eager to enter the cryptocurrency game but are still waiting for the right conditions to do so. They are looking for more Bitcoin futures trading opportunities, better scalability, higher liquidity, etc. When all these criteria are met, a whole new group of investors could end up flooding the crypto market.

It could happen this year or next year. The timing is hard to predict. But chances are high that the stars will align at some point. When this happens, the demand for cryptocurrencies, as well as the value of cryptocurrencies, are going to explode. Even though a lot of the signs seem discouraging right now, the crypto market isn’t dead. The demand is still there. It might be a roller-coaster ride, but sooner or later cryptocurrencies are going to overcome the many obstacles in front of them and start giving fiat currencies a run for their money.

 

About the author

Mary Ann Callahan is an expert on Bitcoin-related topics and a journalist at the cryptocurrency exchange Cex.io. She works on articles related to blockchain security, Bitcoin purchase guides or Bitcoin regulations in different countries. Previous to this she was social media marketing manager for Boston Globe Media from 2012 to 2015.

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