Examining the Cynicism Concerning the Crypto Crash of 2018: Are Markets Discounting Fundamentals?
As you may have heard, there has been mayhem in the crypto markets.
For a while, it seemed like crypto markets were immune to the carnage in stock and bond marketsaround the world. In recent weeks, that has changed in a big way. After a period of sideways trading and low volatility, the crypto crash of 2018 resumed in full force.
The cryptocurrency market as a whole shed nearly $95 billion in eleven days, falling from just shy of $210 billion to $115 billion over the period of November 14th to November 25th according to data from Coinmarketcap.com. The market has since rebounded and sits at $136.6 billion at the time of writing.
The price of BTC declined almost 50% from its point of stability around $6,400 to a low of $3,604 on November 25th, according to the Coindesk Bitcoin Price Index (BPI). Since then, the largest coin by market cap has rebounded to a high of $4,353 only four days later.
This marks the sharpest rise in months and could signal the end of the crypto crash of 2018. So long as the $3,500 support level remains intact, prices should continue to stabilize and start moving higher.
The Crypto Crash of 2018 is Not the End
During times like these, it seems as if all crypto is dying. Prices appear to be approaching zero.
But it’s important to remember that this has happened before. It’s part of a healthy cycle that shakes out weak hands and sets the stage for the next leg up.
Just look at how this recent crash compares to those of the past. From this perspective, the crash is not at all abnormal:
Of course, if you’ve been holding since 2016 or sooner, even the recent bottom looks pretty good to you.
It’s helpful to keep in mind that less than two years ago, during the first half of 2017, one bitcoin reached parity with one ounce of gold for the first time. And only seven years ago, in 2011, one bitcoin reached parity with one US dollar.
But those who believe in blockchain don’t care as much about price action as they do about fundamental developments.
Positive Developments Despite Crypto Crash 2018
Focusing on prices alone isn’t productive when it comes to crypto. There are much more pressing events happening with regard to this new asset class and the blockchain technology that underlies it. Prices will follow eventually, but the key thing is that the sector is developing and adopting is gradually increasing.
Most of the criticisms of crypto are unfounded and they always get louder at times like these, despite all the positive developments taking place. Just check the Twitter accounts of Nouriel Roubini or Peter Schiff to see how strong the hatred of crypto can be. Of course, they have their own agenda and biases in play.
Several new crypto trading services and products have been announced by some very big financial players. And two large institutions, one of them in the private sector and one of them in the public sector, will soon begin accepting cryptocurrency payments.
Coinbase Launches OTC Trading Service
This week, Coinbase introduced a new service for institutional investors. Coindesk reports that:
“In an interview with news source Cheddar on Tuesday, Coinbase head of sales Christine Sandler said that the firm launched the OTC desk as a complement to its exchange business because institutions are using OTC as an “on-ramp for crypto trading”
In an OTC transaction, a trade takes place between two parties directly, unlike on an exchange where orders are matched between third-party buyers and sellers.”
The introduction of this new service by Coinbase shows the appetite institutional investors have for the crypto asset class.
It’s also quite convenient that Coinbase quietly launched this service very close to the recent bottom in prices. Are institutional investors acquiring BTC during the crypto crash of 2018 in anticipation of the large capital inflows that will happen as a result of increasing institutional adoption?
Swiss Exchange-Traded Crypto Product Sees High Trading Volumes
Another indication of the high net worth hunger for crypto comes from Switzerland:
“An exchange-traded product tracking five of the largest cryptos has become a darling among traders even as the market for digital assets continues to dump.
The so-called Amun Crypto Basket ETP began trading on Switzerland’s Six Exchange last week and it now has the highest volume of any exchange-traded product trading on the venue.”
The ETP saw trading volume of over 425,000 CHF (the Swiss Franc is almost at parity with the US dollar at the time of writing).
This pales in comparison to exchange-traded products in the U.S., some of which measure their daily trading volumes in the hundreds of millions. But the Amun Crypto Basket is showing volume well over twice that of any other ETP available in Swiss markets.
NASDAQ to Launch Crypto Futures Contracts
NASDAQ is planning on creating futures contracts for crypto.
Coindesk reported on Wednesday that:
“The second-largest stock exchange in the world is partnering with investment management firm VanEck to bring a host of new cryptocurrency financial products to market.”
However, there hasn’t been a whole lot of detail disclosed about these futures contracts. It hasn’t yet been revealed if these contracts will be settled in bitcoin or in cash.
The only thing we really know at this point is that this is supposed to set a new regulatory standard for this type of financial instrument and that it will incorporate the SMARTS system used by NASDAQ.
Nasdaq is moving ahead with a plan to list Bitcoin futures, sources say https://t.co/BjMtgyg7Ns
— Bloomberg Crypto (@crypto) November 28, 2018
The stock markets surveillance system (SMARTS) used by NASDAQ consists of hundreds of algorithms that work to sniff out suspicious market activity. It’s not hard to see why using this system might inspire confidence on the part of larger investors.
Starbucks May Soon Accept Crypto Payments
Back when news of the Baakt exchange being created went viral, it was rumored that Starbucks
But this week, at the Consensus Invest conference In New York, Baakt CEO Kelly Loeffler said that Baakt is actively involved in helping Starbucks make crypto payments for coffee a reality.
While Starbucks accepting crypto would be significant, an actual government accepting crypto for tax purposes would be an even bigger deal.
Ohio Accepts Bitcoin for Tax Payments
One of the biggest pieces of recent cryptocurrency news came out of Ohio this week.
The state of Ohio will officially begin accepting bitcoin (BTC) as a form of payment for 23 different business taxes. This might be one of the biggest developments in the history of crypto so far.
Ohio ‘rolls out the red carpet’ for #blockchain businesses by accepting bitcoin this tax season https://t.co/fpLyp9Dxgu. Several US states seem open to #cryptobusiness. They are trying to open the doors to be technology leaders! @CNBCpic.twitter.com/LBNOj9pgYR
— Experts.com (@Experts_Com) November 29, 2018
A major criticism of crypto has always been that it can’t be used for important transactions like paying taxes. Some even say that fiat currencies have greater value for this reason.
That logic no longer holds up. Ohio has set the precedent for a government to accept cryptocurrency as a legitimate form of payment for taxes at the state level. The state of Ohio is one of the first in the world to do this.
How much longer until governments accept crypto at the national level?
The Crypto Crash of 2018 Will Pass
In summary, don’t sweat the crypto crash of 2018. If history is any guide, this is par for the course, and the next all-time high will shatter all previous records.
Two big criticisms of crypto have always been that it can’t be used for simple things like paying for a cup of coffee or paying taxes. All of this is changing in a big way as we head into 2019. That’s good news for the market and the future of this asset class.
With futures contracts sponsored by the second largest stock exchange in the world and an OTC service for institutional investors by the largest American-based crypto exchange, big money is about to flow into crypto. It’s only a question of when.
In spite of the crypto crash of 2018, there has never been a more exciting time for crypto enthusiasts. It is precisely during times like these that smart money is accumulating and buying at deep discounts.
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