In August 2018, Bitcoin and a large batch of other cryptocurrencies experienced a massive sell-off, and the market is showing few signs of turning around any time soon.
This week, Bitcoin dropped as much as 6.2 percent to $5,887. This is the pioneer digital currency’s lowest level since June. However, as Bitcoin maintains its low but stable level, Ether is matching it in a race to the bottom, falling as much as 13 percent. The total cryptocurrency market cap dropped to $192 billion from its apogee of $835 billion in January 2018. This means that much of the gain made during the Bitcoin bonanza in 2017 has been erased.
Ether’s Race to the Bottom
This sell-off is likely due to uneducated investors entering the market as the price of cryptocurrencies skyrocketed and their subsequent panic as the price corrected to more reasonable levels. This was compounded by the fact that the SEC kicked their decision on Bitcoin-backed ETFs down the road.
The bottom was dropping out of Ethereum quicker than Bitcoin because the “Cambrian explosion” of ICOs and crypto businesses which accompanied the meteoric rise of Bitcoin, were predicated on the Ethereum blockchain. Many entrepreneurs felt let down by the platform which brought so many shoddily realized crypto businesses. Ironically, the fact that Ethereum provided a platform upon which companies to be built made its currency more vulnerable to the fluctuations of the market.
Ether fell 39 percent in the last month while Bitcoin fell only 22 percent. In 2017, Ether made up 32 percent of the crypto market cap while Bitcoin made 39 percent. At the moment Ether makes 14 percent and Bitcoin accounts for 54 percent. The rest of the market cap is made up of alt-coins where investors have decided to store their value.
Insulated From the Fluctuations
There is still great interest in cryptocurrencies as an asset class. Given the fact that there is a low correlation between crypto and other assets, it appears to be well insulated from the sturm and drang of the global market. However, this may prove to be a double-edged sword.
While many people believe that cryptocurrencies are the haven asset of the future, the rollercoaster ride of the last twelve months shows that is not necessarily the case. Turkish crypto holders have doubled down on their investment to hedge against the 25 percent drop in the Lira do not seem to care that cryptocurrencies have experienced in similar drops in a comparable period. Though crypto is insulated from other asset classes, it is not immune to the fluctuations of a rising market.
With that being said, quirky billionaire Tim Draper recently tweeted a link to his famous crypto “rap song,” for those who are new to the crypto hustle. He reminds potential investors that a “new world order” is possible and empowers them to “play across borders,” if they want to be a “hodler.”