The cryptocurrency market is in the throes of a prolonged bear market. Throughout 2018, the market has steadily dropped from all-time highs from the end of last year. There are a variety of reasons for this trend, many of which can be traced back to the unregulated nature of the blockchain economy. The final quarter of 2017 saw astronomically high prices for the top cryptocurrencies, and a sudden rush of initial coin offerings and token generation events. As major media attention focused in on the previously niche ecosystem, a rush of new money entered the market. These investors were less savvy than the previous technocratic community, and that lack of knowledge took a toll. Scam companies, market manipulation and pyramid schemes all reared their head in the wake of the record market cap.
What Could Salvage the Market?
While it would be easy to succumb to pessimism, the cryptocurrency market and blockchain technology still have much to offer the world. The decentralized nature of blockchain projects could still revolutionize how data is shared and how money is spent. To stabilize the market, several things will have to happen. First, governments will have to better regulated the environment. Allowing it to run rampant is as poor a choice as crippling it with ill-thought out regulation. There must be some form of regulatory body with the power to prevent fraudulent ICOs.
Further, institutional money would be needed to expand the market cap. As it stands, the market is still small enough to suffer from manipulation. Users with control of a high percent of any given project can create volatility. This volatility is profitable for them but drains the average investors of funds. The larger the market cap, the harder this would be the achieve. However, to reach this point, the market must become safer for these traditional financial institutions.
Basic Safety Tips
Smaller scale investors can protect themselves from the seedier portion of the market through research. Just as with traditional investing, jumping in blind or on a rumor will often result in a loss. Instead, investors should make sure that they have confidence in the project at hand – attempting to capitalize on volatility is dangerous, particularly given the unpredictable nature of the cryptocurrency market.
When looking at a new project, the first red flag is in coin allocation. If a large percentage of the total coins are held by founders or ‘advisors’, investors beware. This not only means that a major part of the total value is centralized, but also that the price could tank if these players decide to leave the game. Other issues are a lack of product necessity or asking the question ‘Does this require blockchain?’ If the answer is no, then the project faces an uphill battle.
Ultimately, investors face daunting learning curves and severe volatility. Cryptocurrency is still alive and well, but we may have to wait for more substantial projects to come to fruition before the market fully recovers.
Article By: Adam Stone