As of Jan. 29, the combined value of all cryptocurrencies has fallen by more than 50% in the last month from a peak of around $730 billion. Bitcoin, Ethereum, and other coins have fallen substantially since
their peaks around mid-December. The price dive is happening for two reasons: First, some investors who entered the market at peak prices are now taking profits after a dramatic rise in valuation across all virtual currencies;
Second, as we enter the new year, many believe new regulations on digital tokens will be introduced that may impact their performance moving forward. The plunge also comes amid growing concerns about token sales known as initial coin offerings (ICOs).
Last week, New York Governor Andrew Cuomo announced that he will appoint a task force “to crack down on fraudulent cryptocurrency operators” in response to the proliferation of ICOs in his state earlier this year.
Read on to find out more about what has driven prices down — and what it means for you.
Freefall Continues
Over the last few weeks, bitcoin has fallen by around 25%, Ethereum by 40%, and ripple has plunged by over 60%. Other major virtual currencies like bitcoin cash, litecoin, and stellar have also fallen substantially as well.
Except for stable coins like tether and the Japanese yen, no other asset class has seen such a dramatic drop in value since the financial crisis in 2008. It’s not surprising that many investors have begun to take profits from an asset that has risen by more than 1,300% in the last 12 months.
Significantly, the bitcoin futures market has also fallen in line with the price of the original token. This suggests that a significant amount of investors are betting that the price of bitcoin will continue to fall.
Bitcoin Sheds Another $10k
The price of bitcoin is now down by more than 50% from its peak of nearly $20,000 on December 16. While it has fallen as low as $10,000, it has since recovered to $13,000.
Bitcoin has always been volatile and prices often rise and fall by hundreds of dollars within a single day. But the recent fall in price has been substantially more dramatic than any other drop in the last nine years.
The reasons for this are likely to be the same as for other virtual currencies. Many investors who bought bitcoin at its peak are now taking profits after a dramatic rise in valuation across all virtual currencies.
Ethereum Loses Another 10%
The price of ether, the native token of the Ethereum blockchain, has fallen by more than 40% from its peak of $1,400.
Ethereum is one of the most popular platforms for building and deploying decentralized applications and as such, many see it as a more promising long-term investment than bitcoin.
That said, the likelihood that some governments will take action against virtual currencies in the new year may have contributed to the recent fall in Ethereum's price.
According to an investigation published by Bloomberg earlier this month, Ethereum is now being used by hackers to launder money and evade law enforcement.
Ripple, Bitcoin Cash, and Litecoin also Falling
The price of ripple, the native token of the XRP ledger, has fallen by more than 30% in the last month. The price of bitcoin cash and litecoin has fallen by more than 20%.
Understandably, the dramatic fall in price is causing panic among investors and leading some to believe that the “bubble has burst.”
That said, there are compelling long-term investment reasons for why the price of virtual currencies has fallen. First, some investors who entered the market at peak prices are now taking profits after a dramatic rise in valuation across all virtual currencies.
Second, as we enter the new year, many believe new regulations on digital tokens will be introduced that may impact their performance moving forward.
Why Are Virtual Currency Prices Falling?
When the virtual currency market began gaining mainstream attention earlier this year, many industry experts warned of a “bubble” in terms of valuation.
There are few examples in the modern history of assets increasing in value by more than 10,000%12 monthsriod.
While it’s difficult to know what the future holds, the recent fall in virtual currency prices is likely related to the fact that many investors bought bitcoin and other tokens at peak prices.
Now that the market has cooled down a bit, many of these investors are selling their tokens at a profit. Because the fall in prices has been so dramatic, some have speculated that there could be a “mini-crash” in the virtual currency market.
But according to one industry expert, the price drop could be the result of government regulation.
What Does the Future Hold for Cryptocurrencies?
There are many reasons to believe that this is a good time to invest in digital tokens. There are several compelling long-term investment reasons why the price of virtual currencies has fallen.
First, some investors who entered the market at peak prices are now taking profits after a dramatic rise in valuation across all virtual currencies. Second, as we enter the new year, many believe new regulations on digital tokens will be introduced that may impact their performance moving forward.
That said, regulations on virtual currencies have been long in the making, with many governments introducing legislative frameworks for token sales in the latter half of 2017.
Moving into the new year, it’s likely that regulators will focus on increasing investor protection and reducing fraud in the ICO market. This could have a positive impact on the overall health of the virtual currency sector moving forward.
Conclusion
In the last year, the cryptocurrency market has exploded. The combined market cap of all coins has risen from $19 billion to $613 billion. And the price of individual tokens has skyrocketed, too:
Bitcoin has risen from $900 to $20,000. And now that the market has cooled down, many investors are taking profits thanks to the dramatic fall in virtual currency prices.
The recent fall in virtual currency prices is likely related to the fact that many investors bought bitcoin and other tokens at peak prices.
Now that the market has cooled down a bit, many of these investors are selling their tokens at a profit. As we move into the new year, regulators will likely focus on increasing investor protection and reducing fraud in the ICO market. This could have a positive impact on the overall health of the virtual currency sector moving forward.