After the dramatic downturn in the crypto market scene since January of 2018, we are witnessing another downturn which in turn is affecting the Blockchain technology scene behind these cryptocurrencies and tokens.
Some people are blaming a dormant wallet since 2014, holding around 111.114 BTC (something around 1Billion $ but it represents ONLY 0.0064 from BTC circulating supply) amount in small portions have been moved to Binance and Bitfinex, two of the largest cryptocurrency exchanges in the world.
Others are blaming news coming from Goldman Sachs claiming that the Bank is halting its plans to open a cryptocurrency trading desk!
So what does this downturn mean to investors? At the very basic levels it means there is less trading and so a continued downward spiral, something that will have a negative effect on the technology itself.
If we compared traditional market trading with cryptocurrency trading, it is at first an unfair comparison even though at the surface they might look similar. With traditional markets, the ebbs and flows are tied to the yearly or financial results of companies or the fluctuation of currencies, Gold or others and this in turn is affected by political situations or governmental policies and sometimes even the weather. So investors in this arena make investments based on hard facts or historical data or tangible research. Sometimes they work and sometimes not.
However when it comes to cryptocurrencies most willing investors are building their own forecasts and sometimes it works and at times not. But what is their analysis based on? Today they are using the same methodology and tools that we use for traditional markets for demand forecasting. This does not fit the crypto portfolio that is being traded.
The only rational criteria that is possible today to forecast the value of these assets and cryptocurrencies should be the technological value that stands behind them and how well this technology is being adopted. Herein lies the problem, end users or current investors are not able to make assessments on the technology itself. Even users today don’t know what their mobile phone is made of but we use what is good and reliable. Today most of the blockchain technology behind these cryptocurrencies is still in testing phase or proof of concept phase or sandboxes, as such the ups and downs of the market will continue until enterprises and conglomerates begin to use and adopt this technology and institutional investors begin to trust trading in these cryptocurrencies.
Until then, the market will not return to its Jan 2018 levels, and many ICOs will not be able to raise the funds that were raised in 2017. In addition many ongoing projects might stop because they have utilized all available cash and cannot get additional funding. Only a few well trusted and accepted projects will remains and gain traction. These projects will receive investment from international and institutional investors who carry out the due diligence and sit on the boards of these startups. The current practice of having advisors in a Blockchain startup in the launching phase is not enough, investors need to take a more active role and hold startups accountable by being on boards and having an active say in what is going on and where money is being spent.
It is an unfortunate period and the solution is not injecting more money into the industry but rather adopting the Blockchain technology within well-established business and international conglomerates so that the community and conventional investors can trust the Blockchain again.