Q1 2018: THE PERFECT CRYPTOCURRENCY STORM

The cryptocurrency market saw unprecedented prosperity in the end of 2017 but the same thing could not be said about the first quarter of 2018. As anyone vested in cryptocurrency knows, the first quarter of 2018 was a brutal one, with overall market cap dropping by over 300 billion US dollars. What factors contributed to this strong bear market and what caused so much downward pressure on the cryptocurrency market?

 

HEALTHY PULLBACK

After an explosive December and beginning of January, cryptocurrency prices experienced stagnation and volume decreases across the board occuring around January 8th and throughout the rest of the month. While this correction to the market prices seemed to be a “healthy pullback” to experienced traders, it also frightened newcomers to the market. Frightened investors sold quickly to protect small gains or hedge losses prompting even more of a downward spiral to market prices.

 

BITCOIN’S IMPACT

Although Bitcoin’s overall market share decreased in 2018, don’t be fooled by the sway this one coin has on the rest of the market. Since 2015, BTC has seen corrective price behaviors between the 4th and 15th of January. See the chart below:

Source: Coindesk

This price correction happened in 2018 as we all know, nearly a 30% decrease from January 1st to January 31st. CME Group and CBOE also opened up Bitcoin futures in December of 2017 which changed the dynamic of how Bitcoin was traded forever. With the first batch of futures expiring in early February, Bitcoin now was experiencing more multidimensional pressure than ever from investors and traders. With millions of dollars leaving BTC and the prices declining, the rest of the cryptocurrency market suffered alongside its long time leader.

 

INTERNATIONAL REGULATIONS, NEWS & EVENTS

The first quarter was not favorable for cryptocurrency when looking at international impacts on the market. See a list below of regulation updates, news releases, and events that negatively affected the cryptocurrency market in Q1:

  • January 8th: Coinmarketcap.com omits several South Korean exchanges (including the world’s second largest) from its analytics and calculations resulting in a considerable reduction in the global market capitalization.
  • January 11th: Information surfaces suggesting South Korea would soon ban all cryptocurrency trading. This information was later refuted.
  • January 15th: Credible reports surfaced that Beijing was planning to prevent access to foreign and domestic exchanges.
  • February 5th-10th: Global stock exchanges saw steep declines following a 4.6% price fall in the Dow Jones index. The price of oil also declined during this time period.
  • February 14th-21st: Chinese New Year celebration drastically affects the trading volume of the cryptocurrency market.
  • March 7th: The SEC releases statements demanding crypto-exchanges to register with the SEC if they have tokens that classify as securities. The same day, Binance, one of the world’s largest exchanges, experiences a large hack preying on traders utilizing API keys for trading. Not a good day in the crypto world!
  • March 15th-20th: Google and Twitter join Facebook in a stand against advertisements of cryptocurrencies and ICOs on their platforms.

As you can see, the first quarter of 2018 was extremely eventful in the cryptocurrency world.

 

ASIA’S IMPACT

China, Japan, & South Korea are some of the biggest players in cryptocurrency realm and constitute as the majority of Asia’s trade volume. During the first quarter there were several negative news releases and “crypto scares” involving these three countries. As a result, trade volume in the eastern hemisphere significantly decreased in Q1 of 2018. Another factor affecting this decreased trade volume was the Chinese New Year as mentioned. Although Chinese New Year is celebrated for a week, the effects can be felt for 30-40 days in international business, commerce, and now, cryptocurrency.

 

THE PERFECT STORM

Cryptocurrency’s market cap cleared $600 billion in 2017, a truly impressive feat when you consider the market cap on January 1, 2017 was just over $18 billion. The growth near the end of 2017 proved to be unsustainable as the first quarter of 2018 slashed trader’s gains with no remorse. The combination of factors above and natural cycles prevalent during this time of the year proved to be too much for the cryptocurrency industry, spurring the Q1 downturn.

As the market continues to recover and resistance walls build, we expect more sustainable growth patterns in the future. More governing bodies are beginning to weigh in on the challenges prevented by blockchain and cryptocurrency innovations. From this, we expect to see more regulations that may result in more stability to this volatile market.

 

 

David Eisenhauer
David Eisenhauer

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