The Christmas cheer might not spread to cryptocurrency markets this year.
The market capitalization for digital currencies reached new highs this past week as altcoins propped up a rally in the face of a decline in bitcoin prices. But the markets seem to have reversed course. Altcoins have joined the original coin in shedding their gains as market caps are tumbling. Coinbase has stopped trading on account of "high traffic". Unless there is a recovery, it looks like Santa Claus will not be visiting cryptocurrency markets.
Images, they say, are more powerful than words. Here’s a price chart for bitcoin’s price at 14:30 UTC.
The cryptocurrency’s price has collapsed by approximately $5,000 (or, 24.73%) from its price 24 hours ago. On a weekly basis, the fall in bitcoin’s prices amounts to 33.24%. (See also: Bitcoin Plunges Below $13,000, Heads For Worst Week Since 2013).
And, from its high of $19,643.02 last Sunday, bitcoin’s price has declined by 40.3%.
While a correlation hasn’t been determined yet, bitcoin’s price trajectory is indicative of price movement for other cryptocurrencies. Mostly they move in tandem; occasionally, they break out of rank. The prices for the top 10 most-traded cryptocurrencies moved in sync with bitcoin in the last 24 hours, losing an average of 35% from their prices 24 hours ago.
Bitcoin Cash, which registered a new record high this week, was down by 38.91%, as of this writing. Litecoin, Dash, and Cardano were other cryptocurrencies within the top 10 most-traded that shed significant value. All three had reached record highs in the last month.
The overall market capitalization for the cryptocurrency market was $432.7 billion. On Thursday, it had reached a record high of $654 billion.
Will Bitcoin Crash Further?
It is difficult to say, given the unpredictability of its movements and the absence of a single correlating factor. Technical analysis has failed to accurately predict the cryptocurrency’s price movements. That said, bitcoin has recovered lost ground quickly enough in the past. For example, it rose by almost $5,000 to post a new high just last week. (See also: Bitcoin Price Crosses $19,000; How Soon Before $20,000?)
Takashi Hiroki, chief strategist at Monex Securities, compared bitcoin trading to gambling cause the cryptocurrency doesn’t follow logical patterns. Neil Wilson, senior market analyst at ETX Capital, told Guardian that the price decline might be a simple case of traders selling off at the end of the year to rebalance their portfolios. An interesting piece on Coindesk discusses the role of credit in bitcoin’s price movements. According to Marc Hochstein, the author, bitcoin is rapidly being “financialized” and credit is becoming an increasingly important part of its system. He quotes a startup CEO as saying that it might boost the price of bitcoin in the short term but it would remove bitcoin from being a true store of value.
But traders invested for the long term have reason to remain sanguine about bitcoin’s price movements. It has been the subject of several news reports about institutional money making their way into cryptocurrency markets. Money from hedge funds is finding its way into digital currencies. (See also: Hedge Funds Reap Spectacular Returns From Cryptocurrencies). TD Ameritrade and E-trade have already begun or are planning to allow access to bitcoin futures contracts. Goldman Sachs also intends to set up a bitcoin trading desk by end of June next year or earlier. And so it may be for other cryptocurrencies. Ripple’s prospects are the subject of a long optimistic piece on CNBC. Bitcoin Cash, which made news for its price movements and allegations of insider trading at Coinbase earlier this week, and Litecoin are enhancements over bitcoin's scaling problems. In turn, they could fulfill bitcoin's promise of a digital currency for daily use.
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 0.001 bitcoin.