The world’s most talked about cryptocurrency is falling.
It wasn’t that long ago when we saw Bitcoin peaking at around $20,000 in December 2017. It opened up the new year at around $13,000.
But Bitcoin is getting lower and lower…
It dipped just below $6,000 on Tuesday, February 6th.
And Bitcoin wasn’t the only cryptocurrency feeling the plunge. According to CoinDesk, Ethereum also slid more than 15% on Monday afternoon, too.
The cryptocurrency market cap fell to $300 billion from its peak cap of $830 billion.
Investors are straying from assets that could be perceived as riskier, such as cryptocurrencies — especially since the heavy sell-off in global stock markets over the past few days.
On Monday, the Dow sunk almost 1,600 points, which was the biggest decline during a trading day in history.
The hesitation over investing in Bitcoin could be happening for a few reasons. One big reason could be coming from regulators warning investors about the kinds of risks involved with cryptocurrencies.
Then you have countries like South Korea and India that have already banned digital currencies.
Australia and Japan are somewhat following in South Korea and India’s footsteps by increasing their efforts to tighten Bitcoin regulations.
And reports from China say authorities have banned domestic and foreign cryptocurrency exchanges.
In addition, there’s an advertising ban on Facebook involving advertisements pertaining to all cryptocurrencies — not just Bitcoin.
Not to mention, in the past week, several banks announced that they would not longer allow their customers to buy cryptocurrencies using their credit cards…
Bitcoin Volatility
Another big factor for Bitcoin’s volatility comes from news of a Senate Banking Committee hearing on cryptocurrencies.
Securities and Exchange Commission (SEC) Chairman Jay Clayton and Commodity Futures Trading Commission (CFTC) Chairman J. Christopher Giancarlo were set to testify at the hearing on February 6th.
Clayton has already expressed concern over certain weaknesses involved with trading cryptocurrencies.
He’s said, “The currently applicable regulatory framework for cryptocurrency trading was not designed with trading of the type we are witnessing in mind.”
The hype involved with cryptocurrencies took the market to an unbelievable high — investors didn’t want to miss out on any type of opportunity to make money.
The market taking off has made it hard to regulate and carve out regulations for cryptocurrencies.
During the Senate Banking Committee hearing, both Clayton and Giancarlo reiterated their intent to regulate the cryptocurrency but stressed that they didn’t want to stifle cryptocurrency and its related offerings.
The huge issue here is legitimizing the market — figuring out how to crack down on the people who are taking advantage of this market like hackers and frauds.
There are hackers who are draining funds from online exchanges. Cryptocurrencies took off so quickly that it was hard to manage the rise and prevent such a hectic frenzy.
Kevin Werbach, a professor at the Wharton School of the University of Pennsylvania, had this to say about cryptocurrencies:
Cryptocurrencies are almost a perfect vehicle for scams. The combination of credulous buyers and low barriers for scammers were bound to lead to a high level of fraud, if and when the money involved got large. The fact that money got huge almost overnight, before there were good regulatory or even self-regulatory models in place, made the problem acute.
This resonates so much: a young market based on a technology that was first associated with anonymity.
There’s a lot of instability in this market and a lot to figure out. Right now, everyone is just trying to get a grasp on how to regulate this market. It’ll take a few more hearings to figure out how to regulate it, but it definitely needs to happen.
We’re seeing cryptocurrencies falling right now because its time for the market to level out. And it’s also time for regulators to figure out how to incorporate this brand-new, intriguing market into investors’ lives without the apparent risk.
Until next time,
Jennifer Clark
Pro Trader Today