Crypto crash: What does this mean for the industry and retail adoption?

Yesterday Bitcoin tumbled to its lowest value since December 2020 after booming levels of inflation spooked crypto-investors.

As the world’s largest digital currency, there is naturally a knock-on effect on the rest of the market. The crypto-scape may be volatile but yesterday’s tumble and what it could mean for the sector is worth noting.

Bitcoin has developed a cult following online and many see it as a quick-fire way of getting a return on an investment. At its peak last November, one Bitcoin was worth approximately £50,000. It has now lost 59% of that value and sits at around £20,600.

The second most valuable cryptocurrency money can buy is Ethereum, coming in at just under £1,100 – £18,900 less than its competitor. Ethereum has also suffered as a result of Bitcoin’s fall, tumbling almost 30% over the past 7 days.

Specialist price-tracking website CoinMarketCap estimates that almost $80 billion has been wiped off the value of the global cryptocurrency market in the past 48 hours.

As a result of frantic trading, crypto-lending platform Celsius halted account withdrawals, citing “extreme market conditions.” Popular website Binance also made a similar move and halted withdrawals of Bitcoin for several hours.

“It’s not a great look for the market when crypto firms like Celsius pause transfers during such crucial times, especially as the crypto press has already in recent times not been the most positive,” Scandinavian fintech brand Skilling‘s CEO Michael Kamerman tells Charged.

The repercussions

Ripples felt from this period of volatile trading would have touched even the most casual of crypto-trader. But what are the repercussions?

The volatility of the crypto market has been well documented, this is mainly because cryptocurrencies that are on their own blockchains do not come under regulation or control by any central bank. The only way to ensure a currency retains a degree of stability is to have it linked to a fiat currency, which the government has decreed as legal tender.

While cryptocurrencies are still a new commodity and there is still a large amount of excitement surrounding the notion of investment, consumers could end up becoming disillusioned with hedging their bets on such an uncertain asset.

“Retail traders’ enthusiasm for investing may currently be harder to turn around mostly due to increased retail investor market participation over the previous year’s bull market,” Kamerman says.

Ripples felt from this period of volatile trading would have touched even the most casual of crypto-trader. But what are the repercussions?

The volatility of the crypto market has been well documented, this is mainly because cryptocurrencies that are on their own blockchains do not come under regulation or control by any central bank. The only way to ensure a currency retains a degree of stability is to have it linked to a fiat currency.

While cryptocurrencies are still a new commodity and there is still a large amount of excitement surrounding the notion of investment, consumers could end up becoming disillusioned with hedging their bets on such an uncertain asset.

“Retail traders’ enthusiasm for investing may currently be harder to turn around mostly due to increased retail investor market participation over the previous year’s bull market,” Kamerman said.

Kamerman discusses the possibility of consumers and businesses losing interest on what he refers to as “high-risk projects.”

“While this may be a harbinger of things to come, and despite sentiment cooling towards particularly high-risk projects following the collapse of the Luna and Terra tokens, crypto is still the word on everyone’s lips, including traders, major players in financial services, governments, and policymakers.

“Ultimately, what we are seeing is a great crypto washout. Cryptocurrencies with weak business propositions are being sieved out, hopefully leaving only those who will stand the test of time.”

In 2013 there was only 66 cryptocurrencies in circulation. In February this year there was 10,000, according to data from Statista.

Stories of investors getting rich quick have spurred the market on, with savvy tech enthusiasts and companies putting out new coins monthly. However the ongoing issue of volatility could be a turning point for the industry and its future.

Notions of cryptocurrencies becoming the main financial commodity in the not-too-distant future have been floated, however this setback does little to assure investors that this is the right way to go.

The technology in which cryptocurrencies reside is impressive and almost foolproof, with digital ledgers – which are accessible by anyone – called blockchains providing secure foundations for the sector to thrive and grow.

A reset or the Bitcoin bubble bursting?

Bitcoin trading platform BitMEX CEO Alexander Höptner played down fears of a crash by saying: “First, I think it’s important to remember that this crypto market downturn is not happening in a vacuum.

“Crypto is still considered a risk-on asset, and as traditional equities have been pummelled, the downturn among crypto has correlated with the rest of the market.

“We are learning very important lessons about the crypto market in the meantime, however. The crypto market is a truly free market, and in free markets there are no bailouts; because of this, some projects fail and only the best ideas survive.

“I would call this a correction rather than a crash, because the market – which is still very young – is undergoing a natural pendulum swing.

“The fundamentals of many blockchains and ambitious projects, especially Bitcoin, are as sound as ever. Crypto is never going away, and this is good news for those who are benefiting from the novel solutions it provides. I see a smoother runway for price appreciation in the future.”

A natural reset for the market may end up being a good thing for wider industry adoption at the cost of crypto-investors.

While there are a growing number of retailers, including Etsy, Whole Foods and Rakuten, offering payment solutions with Bitcoin, the price of one single coin is largely unaffordable to a large proportion of consumers.

Digital transformation consultancy Elsewhen chief strategy officer Leon Gauhman was less optimistic about the industry: “The cryptocurrency bubble is bursting,” he says.

“Any winners will be the strong projects with a clear value proposition, nerves of steel, a blue chip ecosystem and very sizeable liquidity. The losers will be everyone else and their numbers will be considerable.”

But if the price of the most widely used cryptocurrencies fell to a more affordable level, then the gateway for widescale retail adoption will open up even more.

There will probably be similar patterns of troughs and peaks for the sector for years to come and until they are ironed out, then cryptocurrency as a means of payment will be refined to the outskirts of the retail sector and the corners of the internet.




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