• dmelczer

The Great December Crash of 2017

While you were asleep, cryptocurrencies in general have had a major correction -- probably the largest of 2017. In the last 72 hours the general cryptocurrency market capitalization (the sum of all coins in circulation multiplied by the price per coin) has lost over $225 billion. Yes, that is billion with a capital B.

We've explained in many places on this website how volatile the cryptocurrency market is. This drop in the market is a culmination of several factors, not simply one. Let's examine some of them in more detail to get a better understanding of exactly what is going on at the moment.

#1 The cryptocurrency market in general was overdue for a correction. No market has ever progressed in a linear fashion to the moon. There are days of tremendous gains, and days like we've had recently where sell-offs are abundant. Just about every major cryptocurrency has lost a significant amount off of its recent highs. Check these out:

  • Bitcoin - Down from $19,500 to $12,500 as of this writing (down 35%)

  • Litecoin - Down from $375 to $220 as of this writing (down 41%)

  • Ethereum - Down from $810 to $590 as of this writing (down 27%)

  • Ripple - Down from $1.22 to $0.82 as of this writing (down 33%)

  • Dash - Down from $1,550 to $1,115 as of this writing (down 28%)

  • Bitcoin Cash - Down from $3,700 to $2,450 as of this writing (down 34%)

It's plain to see that what is going is not affecting one coin in a vacuum, but rather the entire cryptocurrency market in general. Most of the highs shown above had been attained only in the last month or two. There was a scramble of people to invest in cryptocurrency, the "whales" (investors with enough coins to be able to manipulate the market) made their profits and began selling, causing a little bit of a panic for new investors, or those that have not yet experienced this much of a market correction. This process is normal. It encourages those who are not investing long-term to flee the market quickly and stabilizes prices at a new price floor before the next bull run increase. In December of 2013, the markets lost about 60% of their value, so this is certainly not an isolated incident. Heck, it's not even an isolated incident for this year. Back in August the markets lost about 30% of their value when China announced sweeping regulations over cryptocurrency. It should also be noted that some of this profit taking may have also triggered "bots" systems with algorithms that buy and sell for traders. The quick and steady decline of the market could have prompted many of these bots to exit the market to minimize losses. It should be noted that in January Bitcoin was valued at about $700, Litecoin at $4.00, Ripple under $0.15, Ethereum under $ see the trend I'm sure. Even with this latest drop 2017 has been an amazing year for cryptocurrencies.

#2 Litecoin founder sells all his coins. This was widely misrepresented in the media, unfortunately. The purpose for Charlie Lee's sell-off was provided in his own tweets (you can follow him at @SatoshiLite). People saw Mr. Lee selling and incorrectly assumed that he had no faith in the cryptocurrency market himself. As such, they lost faith as well and began to sell before too much of their profit was gone. This part of the drop is directly caused in my opinion by irresponsible journalism and little else.

#3 Bitcoin vs. Bitcoin Cash. There has been a feud going on for many months for control of the largest cryptocurrency, Bitcoin. The feud between the Bitcoin development team and the Bitcoin Miners (led by Roger Ver) have allowed this feud to spill into the public. Big mistake, Roger. Huge. You've shaken market confidence through your irresponsible attacks and misleading propaganda. You need to accept that there is room for more than one coin in this ecosystem, and that the one you have chosen to support may not be the long-term winner. Get over it. Let Bitcoin Cash gain or lose adoption based on the merits of the protocol and the coin, and not based on misleading propaganda and FUD (fear, uncertainty, and doubt). It's bad enough that you're trying to confuse the market and increase the profitability of your coin through riding the coattails of the Bitcoin name. Shame on you.

#4 CNBC accused of insider trading in Cryptocurrencies. Yes, believe it or not the SEC is now launching a full-fledged investigation into Bitcoin Cash, the marketing team of Bitcoin Cash, the Coinbase exchange, and CNBC for insider trading. We all know that the cryptocurrency market is wholly unregulated, but don't underestimate the power of this investigation and the damage that it is going to do. Once again, this is huge and includes Roger Ver who resides beyond the long arm of the US Government in Tokyo, Japan. Another shameless power and money grab.

#5 Coins are being sold to fund holiday gift giving. This kind of a sell-off typically happens right before Christmas and New Year's. It's been happening for years in the cryptocurrency markets. It is equally likely that individuals purchased coins on credit cards in order not to "miss out" on the rise of coin values, but now need to pay back the creditors. Of course, with holiday bonuses coming soon people also see discounted coins and begin to stock up over the next two to three weeks. That is the beginning of the bounce back. Again, normal market movements, and nothing to be overtly concerned with.

#6 Recent hacks. There have been a number of cryptocurrency-related business that have been hacked over the last two weeks. Bitmain's NiceHash cloud mining business was hacked for a substantial amount of Bitcoin. South Korean cryptocurrency exchange Youbit said on December 19th that they were shutting down and filing for bankruptcy after it was hacked for the second time this year.

#7 Futures trading. It has been less than two weeks since Bitcoin futures began trading on the Chicago Board Options Exchange and the Chicago Mercantile Exchange. The embrace of cryptocurrency markets by the traditional financial sector has had an unpredictable effect. When the futures started trading, most cryptocurrency investors expected enormous influx of value, but saw the value of Bitcoin climb less than 10%. Goldman Sachs accounced yesterday (December 21) that they expect to have a desk up and running trading Bitcoin (and possibly other cryptocurrency) as early as June of 2018. With the possibility of shorting cryptocurrencies, the impact of these financial institutions entering the game remains to be fully seen. Think about this for a second...

  1. Whales sell futures of futures exchange (CBOE or CME)

  2. Whales dump massive amounts of bitcoin on exchanges

  3. Price tanks, but futures position offsets losses

  4. You lose, they don't.

This may wind up being a standard strategy for those that hold sufficient coins to manipulate the market. It is incredibly possible that these Whales may not have not one, but TWO markets to manipulate for profit simultaneously.

In summary, we need to constantly keep in mind that this market is wholly unregulated. I can not stress this point enough. This market is more volatile than anything else I can think of. These drops, while dramatic, are often followed by meteoric rises in quick succession. As noted in other blog posts, it is important to realize that anything impacting one of the major cryptocurrencies will invariably have a ripple effect on the others (no pun intended). Having a strategy that you rigidly adhere to during these market corrections is vital. Here are two of mine, yours may be considerably different:

  • Hold investments through these dips. They have come before, they will come again. In between there is always enormous profit potential.

  • If I have enough fiat liquid, I try to acquire new coins at a wonderful 30-40% discount. It's Crypto Black Friday! I'm strapping myself into the cryptocurrency roller coaster chair, and getting to ride the next wave of profits.

I wish everyone a very happy, healthy, and wondrous Holiday season and a New Year filled with joy, peace, and love.

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