Bitcoin, the world’s largest cryptocurrency, opened the year negative, for the first time in two years. The coin fell by 4.8% to $13,546, stoking fears that the decline may be the beginning of a crash in the price of bitcoin. The cryptocurrency appreciated by over 1000% in 2017, drawing the attention of retail and institutional investors looking for quick gains.
Bitcoin’s dominance has declined
In addition to worries about a crash, bitcoin has slowly lost its dominance in cryptocurrency markets. From an over 50% market share in mid 2017, it has dropped to 36% share of the market. Total market capitalization has remained relatively stable, suggesting funds are flowing into alternative crypotucrrencies known as alt coins. Verge, an anonymous cryptocurrency was the best perfromer last year increasing by over 9000%.
A bitcoin crash would have major consequences
Many investors have rushed into the currency with the expectation that it would go higher in price. An increasing number have borrowed funds for investing. A bitcoin crash would lead to both investors being wiped out and left in debt. Institutional investors, that have cautiously poured funds into the market, will also be burnt.
A sharp fall in the price of bitcoin tends to drag the price of other alt coins (other crytocurrencies) downwards as people sell in order to accumulate cheap bitcoin. Retail investors, unfamiliar with the cycle often sell in panic.
Armageddon may still be far
Despite the worries, and drop in its share of market capitalization, the cryptocurrency will continue to play a significant role in the near future. The coin still serves as the major means of switching profits on alternative currencies to fiat or regular money.
What should one do?
Investors that have made significant profit should sell down their investments. This especially applies to those who do not monitor prices on a regular basis. They can also set exit orders at a particular price.