In the absence of positive news, bitcoin’s price is continuing its slide. At 14:10 UTC, the price of a single bitcoin was $10,327.17, down 4.13% from 24 hours ago. Earlier this morning, it dropped to as low as $9,972.29 according to a CNBC report.
Other cryptocurrencies were also in the red as the overall market cap for cryptocurrencies dipped to below $500 million. Among the top 10 most-traded cryptocurrencies, NEM and EOS – two coins that are on the plus side as far as overall gains this year are concerned – were the biggest losers, with declines of 10.96% and 9.84% each.
EOS is a smart contract platform that provides developers with business logic used to construct applications on its platform. NEM’s XEM cryptocurrency competes with bitcoin as a payment mechanism for daily transactions. (See also: Bitcoin Price Tanks Over the Weekend.)
A Deluge Of Bitcoin Forks
A Bloomberg report this morning states that more than 50 forks in bitcoin’s blockchain are expected this year. The reasons for these forks vary, from developers customizing the blockchain for specific purposes to those looking for short-term profits.
Investors in bitcoin should mostly be concerned with the effect of forks on the cryptocurrency’s price. If past performance is any indication, they have reason to celebrate. (See also: Bitcoin's Biggest Unresolved Tax Question: Hard Forks.)
Bitcoin’s blockchain underwent 19 forks in 2017.
The most prominent ones resulted in a positive effect on its price. For example, the price of a single bitcoin rose by 26% following the launch of Bitcoin Cash on August 1, 2017. There was a similar surge following Bitcoin Gold in November. (See also: What Is Bitcoin Gold, Exactly?)
In fact, the launch of a fork is win-win situation for developers and investors. For bitcoin’s core developers, a fork is a clever way to increase money supply without tampering with the cap of 21 million, which is critical to promote the cryptocurrency as a store of value, instituted by Satoshi Nakamoto. Investors, in the meanwhile, get to invest in another bitcoin offshoot that might skyrocket in price later.
The Role Of Institutional Investors In Bitcoin
A major reason for volatility in the cryptocurrency markets is because they are thinly-traded. As a result, investors and bots with holdings that may not amount to much can easily influence its price. The entry of institutional investors into is expected to put an end to speculation. But it might be a while before they become comfortable with cryptocurrency markets.
“Cryptocurrencies do not have a size and liquidity that is appropriate for institutional asset allocation and the environmental, social and governance concerns of Bitcoin probably rule them out for many pension funds,” wrote Inigo Fraser-Jenkins, a strategist with Bernstein Research. “Aside from all these concerns, the required return of Bitcoin at 5 percent per month for it to have a meaningful place in allocation seems too high for investors to try to overcome these other issues.”
There is some truth to Fraser-Jenkins’ analysis. Even as their underlying technology is becoming popular with financial institutions, cryptocurrencies are still to gain traction as an investment class. Stories abound about rampant scams and inefficiencies in the markets.
Institutional investors have mostly stayed away from trading in bitcoin futures and the SEC has barred ETF trading for cryptocurrencies. Michael Novogratz, a billionaire who has invested one-third of his fortune in cryptocurrencies, shelved plans for a hedge fund focused exclusively on the asset.
But the absence of institutional investors presents an opportunity for individual investors (and a couple of bitcoin whales and bots) to make off with a quick buck.
South Korea Moves Towards Regulating Cryptocurrencies
Finally, South Korea, a country that has exerted significant influence on cryptocurrency prices, is reportedly making progress towards curbing speculation in its cryptocurrency markets. As a start, six major banks in the country will provide their services to bitcoin exchanges in an effort to end anonymous trading.
“Six commercial banks that have supported virtual currency transactions will establish a deposit and withdrawal system to convert (to) the virtual money real-name system and provide full-fledged services from [December] 30th,” an official from the Financial Services Commission (FSC), a government agency, is quoted as saying.
Investing in cryptocurrencies and other Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns small amounts of bitcoin.