The bears are out and it seems like there’s no end in sight to this market downtrend. We’ve seen the landscape change drastically in recent months – the pressure is mounting on the entire cryptocurrency space by regulators. We’ll go over 4 factors that, in our opinion, contribute to the state of this bear market.
1) Regulatory Limbo
Cryptocurrency has captured the interest of government officials/regulators worldwide. Particularly in February, we saw the U.S. Senate take a keen interest in cryptocurrency and the impact the markets may have on consumers. Whilst many governments seem to agree that blockchain technology is something that can be leveraged to improve the overall state of the finance world, there are many discussions in regards to the massive amounts of manipulation, scams, money laundering, criminal enterprise, and other mishaps that fall under the same umbrella.
It is unclear what actions will be taken next pertaining to the regulations of cryptocurrencies. Due to this uncertainty, we’ve seen many of the largest companies take preemptive actions. An example of this is that many of the largest ad platforms are putting an end to cryptocurrency-related promotion. Facebook, Google, Twitter, Snapchat, and Yandex find themselves on this list.
What happens next could have a monumental impact on the markets. India’s regulators have come to a decision just today – the Reserve Bank of India is now no longer dealing with any businesses or individuals who participate in cryptocurrency related transactions.
Whilst we wait for a final verdict from countries like the U.S., Canada and the U.K., we can expect many projects and their facilitators to conduct themselves very carefully as to not be caught in the cross-hairs of regulators.
2) ICOs regulated as securities?
Keeping with the topic of regulation, it seems that regulators worldwide are looking to classify at least some ICOs as securities. Here are what some key individuals/organizations have to say:
Asset ICOs: FINMA regards asset tokens as securities, which means that there are securities law requirements for trading in such tokens, as well as civil law requirements under the Swiss Code of Obligations – FINMA (Swiss Financial Supervisory Authority)
…if a cryptocurrency, or a product with its value tied to one or more cryptocurrencies, is a security, its promoters cannot make offers or sales unless they comply with the registration and other requirements under our federal securities laws. – SEC Chief Clayton
Earlier in the year we saw the SEC issue 80 subpoenas to some of the largest ICOs, as reported by Bloomberg. This has investors worried – if any of these ICOs are found to be violating securities laws, this can put their projects at risk.
Concern is certainly being reflected in the markets. The vast majority of ICOs are Ethereum based, leveraging its’ smart-contract system. In light of this regulatory pressure, Ether and many of the ERC-20 tokens have been hit hard price-wise.
What’s to come of this SEC probe is still yet to be determined for the most part. Centra (CTR), an ICO that was endorsed by boxing champion Floyd Mayweather, has recently been making headlines. The initial coin offering was deemed fraudulent by the SEC, the co-founders arrested, and the coin de-listed by major exchanges including Binance and KuCoin.
One thing is apparent though – if the SEC finds something they don’t like, the project and thus the investors involved could be in some trouble.
3) It is much harder for the average consumer to enter the market
In recent months we’ve seen an enormous amount of banks put an end to cryptocurrency purchases via credit card. Especially so in the United States and Canada.
In December 2017, Coinbase held the #1 spot in the App Store. Users from a multitude of countries were able to hop on the cryptocurrency train using their credit cards and mobile devices – a very convenient and beginner friendly way to get into the market. Coinbase and other fiat gateways were undoubtedly on-ramping a record number of newcomers into cryptocurrency investments. However, things are not looking as optimistic as they once were.
Coinbase has recently stopped certain new customers from adding credit cards to their accounts, regardless of whether or not there are any complications with the particular card issuers:
At the moment, Coinbase cannot ensure customers will have a positive purchasing experience with a credit card. As a result, we have disabled adding new credit cards as a payment method for US customers. (Excerpt from this Coinbase product update)
The pressure that the banks have been putting on cryptocurrency purchases not only makes things difficult for individual investors, but for exchanges as well. Many exchanges find it extremely difficult to find a banking solution, and hopping from bank-to-bank to make ends meet is more commonplace than you’d think.
It’s not unheard of for exchanges to move across the globe in order to provide their users with the services that they need. Just last week, Binance had announced that it would be moving its’ operations from the Asia-Pacific region to Malta. This move will allegedly solidify banking solutions for the company as well as allow for fiat trading.
Without the support of banks and financial regulators, it is very difficult to make cryptocurrency investing easy for the end-user. Hopefully the future holds better things for those looking to enter the market.
4) The general public isn’t interested in a declining asset
Buy low and sell high, a commonly touted rule to follow when it comes to investing. It may seem counter intuitive, but cryptocurrencies seem to find the most investors when they reach their all time highs rather than when they’re retracing previous market prices. It can be boiled down to supply and demand, if a cryptocurrency is at an all time high, that price action must be backed up with an enormous surplus of demand.
Google Trends indicates that new interest had peaked in unison with Bitcoin’s price:
Let’s compare that with Bitcoin’s market cap over the same timeline:
It may very well be coincidence, though the two being related does make sense.
Cryptocurrency prices aren’t looking promising at this time. We are at a crossroads right now when it comes to regulation – the short term future of the cryptocurrency markets will be determined by what regulators ultimately decide.