There are several factors that are affecting the rapid rise and fall we are seeing in the crypto market. Most come down to basic economics.
- Volume. In relative terms, there aren't THAT many people trading. We are talking 1996 levels of adoption for the internet are trading crypto. So, pumping and dumping activities by a few large actors can skew the system very quickly. Also, when huge communities like those celebrating the Chinese New Year for the past few weeks go do things with family and aren't as active, it makes it even easier for swings. As we get more people online, we will see volumes stabilize more and more.
- Regulation. The fear, uncertainty and doubt (FUD) from large nations like China, South Korea, and India—not to mention the US—as they place undetermined regulations or clamping down and exposing frauds will cause some folks to sell off, and restrict large populations from participating causing swings in volume. This is expected growing pains as the market hardens itself. Ultimately, smart businesses will figure this out, and will create such a demand, governments will have to figure out how to make it work for them. Japan and Gibraltar and Dubai are already doing this. We see success there, and other governments will learn and adopt as well.
- Exuberance. People talk about Tulip Mania, or the dotcom bubble like they were reasons to abandon growth industries. Do we still use tulips or the internet? Yes. Of course, and blockchain and cryptocurrencies will be no different. A correction to tame all the wild ideas that do not have the benefit of a true business case need to be culled. That is happening now. I saw that Binance says it is getting over 4000 applications for ICOs every month and a handful are getting through. They are acting as quality assurance gates to vet real business plans and protect investors from people that don't really know what they are doing or don't really understand this economy—they think of ICOs as a easy way to raise money, but have a low potential from making that investment worth something that benefits this economy. We are seeing a shake out of those poor actors now, and we are getting smart really fast to curb their exuberance with real business acumen. This happened not too long ago with the dotcom companies, and I think it will happen even faster now, as we understand tech much better. To figure out these on your own, you will have to do your own due diligence and find out more about who you are investing in—same as stock market investors. Whose behind it? What is their track record? Why does it make sense for blockchain? Is there an economy with actual reasons for velocity (constant buys and sells) to drive the markets up? Also, what markets benefit from the project? We see that the best investments are still in blockchain infrastructure, finance and gaming (
https://twitter.com/Obj_Cloud_Labs/status/954471637285556237). These are the three main areas that build value and stability to the whole ecosystem—its the tide that floats all boats.
- Global markets. Friday saw a spike in the interest rates that set the stock market plunging. These factors affect everyone, including crypto markets. If the stock market is doing well, all investment will do well. If the global mood is to be conservative, that will affect cryptocurrencies even more as our volume is still relatively low.
- Enterprises. This is the reason I think it will bounce back. Enterprises are adopting blockchain technologies for real business cases. There was a great article this week
https://www.coindesk.com/enterprise-blockchain-may-finally-ready-breakout/ citing how enterprises have done their due diligence and are bringing online real services. Depending on how they do it, this has the potential to introduce HUGE volume to the blockchain infrastructure, while building confidence and enterprise investment in the technologies.
This paints the picture that investment here is a long haul. You can't invest and expect to have consistent returns in weeks or months. But, if you invested in Google or Apple in 2000, you'd be very happy today. The same is true with many of these companies emerging today on the alt-coin market.
So, if you are investing, do your homework. Understand how it all works. Be ready to do some long term investing and keep tabs on if your investments are really doing what they say. Blind bets may pay off, but could cripple you too. The only way to help improve your odds is to do the work to understand what you are investing in, and that means looking at the big picture.
