While this may not be the end of Bitcoin, the iconic digital currency, created by the shadowy Satoshi Nakamoto, has taken a major hit this year.
After plunging a further 12% recently it is currently valued at $3,531 USD. It’s hard to believe that less than 12 months ago on December 17th of last year, it climbed to a record high of $19,783.21. Several factors are to blame for this plunge, not least of which is Bitcoin’s dated architecture and inability to process transactions fast enough.
New digital currencies, relying on faster and more modern Blockchain-like ledgers are emerging with the aim to dethrone the crypto giant. We discussed in a previous article on Coin Colony how cryptos like Ripple might be the next Bitcoin, due to their modern architecture and scalability.
So far this year, Bitcoin has lost over 74% of its value since last December. Bitcoin, however, does not exist in a vacuum and the power of cryptocurrency was seen on Monday as it dragged down other major digital currencies like Ripple and Ethereum, with total cryptocurrency market capitalization plummeting to $122.3 billion, down 85% from its peak of nearly $800 billion this past January. In a mere three hours, over $13 billion was erased from the cryptocurrency market.
Many investors and traders have lost substantial sums in this latest cryptocurrency bloodbath, especially those forex traders who did not immediately exchange Bitcoin for US dollars.
Historically, Bitcoin has exhibited high volatility and in the absence of regulations, Investopedia states forex traders and brokers are exposed to the Bitcoin to USD rate risk from deposit to withdrawal. As such, almost all instantly sell their Bitcoins and hold the amount in USD. This method, coupled with FXCM’s Economic Calendar provides forex traders and investors a structured method of tracking economic events and allows them to remain cognizant of market impacting factors.
Events like the crypto market drop highlight the importance of investors able to understand and predict the economic landscape.
While Bitcoin’s steady loss of value this year should have tipped investors to a sharper downturn, the recent drop in value comes amid predictions from financial regulators about the rapid growth of Bitcoin and other digital currencies, which many view as a threat to the US and world economies.
In a recent report the International Monetary Fund (IMF) said that major vulnerabilities in the international financial system could have be created due to the accelerated growth of crypto assets. As such the US Securities and Exchange Commission (SEC) is also partly to blame for the plunge as it has again delayed approval of new Bitcoin instruments as well as fresh investigations of new initial coin offerings (ICOs) and cryptocurrency exchanges. The SEC has also rejected a new and highly anticipated exchange-traded fund planned by the Winklevoss twins, casting further doubt over Bitcoin and the crypto market.
It remains to be seen, amid new incoming regulations and oversight, how the crypto market will recover.