For a brand new industry, cryptocurrencies have had a remarkable run of gains, particularly in the past few months. Currencies like Bitcoin, Ethereum, and Ripple have all made tremendous increases in price relative to where they were even at the beginning of the year. And all of this has occurred in spite of various technical errors that have begun to crop up, an increasing field of competition as more currencies are introduced to the market, and ongoing skepticism from many of Wall Street's leading institutions. Last week, a market correction caused prices of most of the prominent cryptocurrencies to fall quickly and significantly. Does that spell the end of the meteoric rise in prices for the industry?
Temporary Price Slump or a Major Turning Point?
Bitcoin is the currency which continues to draw the most attention out of the field of digital money. The iconic cryptocurrency was the first to enter the public awareness and, in spite of massive gains by Ethereum in the past year, Bitcoin still holds the largest portion of the industry's market capitalization. For that reason, many analysts look to Bitcoin as a barometer of the health of the industry. And for a period leading up to last week, all indicators suggested that cryptocurrencies were more than thriving. Bitcoin nearly tripled in value from the beginning of the year through early June, reaching new highs several times and peaking at over $3000 per coin. However, since reaching that highest point, the currency has dropped down to $2600 or below, according to a profile by Vice.
Many Factors Contributed to Price Fluctuations
Determining whether Bitcoin's price slump is a temporary setback or a long-term evening out of the rapid gains that occurred previously requires a closer look at some of the factors which led to the price drop. Last week, the popular Bitcoin exchange called Coinbase went down due to high volume. This was enough to remind many users and potential investors that cryptocurrencies like Bitcoin are untested when it comes to questions of scaling. Bitcoin in particular has had a difficult time maintaining transaction processing times as its user base has continued to grow.
At the same time, the U.S. dollar experienced a jolt when the Fed raised its key interest-rate target by 0.25%.This pushed the value of the dollar up against other currencies, including Bitcoin and its other digital competitors. Bitcoin has also seen pressure from Ethereum in particular, as the newcomer has added to its market capitalization, taking some of Bitcoin's share in the process. Further, Goldman Sachs warned clients last week that the Bitcoin market was "looking broadly heavy."
With all of these different elements in play, it is difficult to say what will happen to Bitcoin's value in the days and weeks to come. One thing is for sure, though: investors will continue to pay more attention to the cryptocurrency industry as it grows larger and larger.