A Deeper Look at the Cryptocurrency Market and Its State
Blockchain. Every tech-related conversation begins and starts with this word. At least now, at the end of 2018. It’s the technology which underpins the overwhelming majority of cryptocurrencies. We say overwhelming because not a small portion of that simply use the word to create buzz, while being nothing but database projects in their essence.
However, distributed ledger technologies have more than gained the public’s attention. It’s important to be aware, though, that the technology itself and the cryptocurrencies which are built on it are two entirely different things.
We take a closer, more in-depth look at the state of the current cryptocurrency market. We’ll make a few important comparisons with conventional markets to see how the former performs accordingly.
Is the Cryptocurrency Market Reliable?
It’s a million-dollar question. However, answering this requires a lot more than what meets the eye. First off, it’s important to note that more than half of the current market capitalization is, in fact, comprised entirely of the leading digital currency – Bitcoin. At the time of writing this, Bitcoin dominance (the ratio which measures the market share of BTC) is 52.4 percent according to data from CoinMarketCap.
Therefore, it’s safe to say that the market is more than dependent on Bitcoin’s performance – a fact that many use against its reliability.
The current market capitalization of all cryptocurrencies is a little less than $215 billion. This represents a massive drop of around 75 percent since the beginning of the year, when it was at around $800 billion. It’s safe to say that 2018 has been rather rough for digital currencies, as almost all of them have lost the majority of their value.
One of the things that needs to be kept in close consideration when discussing cryptocurrencies is their volatility. Just a few days ago, one of the leading cryptocurrencies Ripple (XRP) surged with almost 100% in a day, only to lose half of its value on the next.
It’s a characteristic which is commonly brought up by crypto critics, outlining it as one of the main reasons for which they are unreliable in terms of investment.
According to Arthur Hayes, CEO of cryptocurrency exchange BitMEX, volatility drops as the prices decrease. He doesn’t see this as a good thing, though, as he holds that venture investors prefer more volatile opportunities for quicker growths.
Quick Look Around
One thing that needs to be said, though, is that the cryptocurrency market is still in an incredibly nascent stage and accounts for a very tiny portion of other, traditional markets.
The domestic stock market of listed companies in the US alone caps at over 32 trillion, dwarfing the current capitalization of cryptocurrencies.
It’s also estimated that all the gold that has ever been mined is roughly equal to about $7.8 trillion, which is also nowhere near the small numbers of cryptocurrencies.
Despite the Odds
Regardless of the comparatively low overall market capitalization of the cryptocurrency market, its first and foremost, Bitcoin, has been performing steadily over the years, marking substantial increases consistently.
In fact, a closer look and a comparison between BTC’s price action and that of some marquee companies in the traditional market reveals that the digital currency has been vastly outperforming them on an unimaginable scale.
Amazon’s stock prices, for instance, have tripled over the last three years. It’s impressive, indeed, but Bitcoin dwarfs these increases, gaining more than 25 times its value since July 2015.
JD.com, which is China’s largest direct retailer, hasn’t seen an improvement in its share prices since August last year. Bitcoin, on the other hand, has marked nearly a 50 percent increase since then.
Banks and Cryptocurrencies
The attention that cryptocurrencies have seen throughout the last year definitely made an impact on banks as well. Most of the marquee names in the industry, though, have shown nothing but restraint to cryptocurrencies. Their main concerns, to no one’s surprise, stem mainly out of money laundering and terror financing issues.
One of the most vocal activists on the no-cryptocurrency front has been the Governor of the Bank of England – Mark Carney. Earlier this year, while admitting that cryptocurrencies do not pose a threat to the financial system, he’s been taking every chance to bash digital currencies for them being used widely for illicit activities. Wells Fargo also halted credit card cryptocurrency transactions back in June.
Nevertheless, various international reports from sanctioned governmental organizations have determined that cryptocurrencies account for an insignificant share of the funds used for illicit activities and that, on this front, cash is still king.
Hong Kong’s Financial Services and Treasury (FSTB) determined that cryptocurrencies are not a threat.
A new report of the Bank of International Settlements (BIS) has also confirmed that cryptocurrencies “do not pose a global financial stability risk.”
Banks and Blockchain
Regardless of their fairly restrictive sentiment towards cryptocurrencies, banks have been rather receptive of the technology which underpins them.
One of the world’s largest investment banks, Goldman Sachs, revealed that it intends to manage Bitcoin for its users.
In another exciting round of widespread blockchain adoption, Barclays, Citigroup, and other major banks recently signed up for a trial blockchain project as well.
The cryptocurrency market is still fresh in the making, there’s no doubt about it. It’s also incomparable to existing markets and their capitalizations.
However, as regulatory clarity is brought forward across the globe, we can only expect further growth as, evidently, the technology which underpins it is already acknowledged.
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