Bitcoin and other cryptocurrencies had a bearish January with massive losses for investors. Bitcoin lost over 40%, while other coins had equally steep losses. These are the factors behind those losses, which have shown no signs of abating in February.
Fears over Tether
Tether is a cryptocurrency supposedly pegged to the US dollar. So every unit of a tether is backed up (in theory) by the dollar. Tether is favoured by investors in periods of extreme bitcoin volatility.
Bitfinex, an exchange and the company behind Tether is yet to provide evidence that it has enough dollars for each Tether created. This has prompted concern among investors that the exchange could be artificially pumping the market.
Japanese Exchange hack
Coin check, a Japanese exchange was robbed of about $532 million worth of NEM. Hacking of an exchange tends to cause a drop in cryptocurrency prices because traders tend to either cash out to fiat currency or move their coins offline. The event was also key because Japan has had a liberal outlook on cryptocurrencies. The hackers have attempted moving the coins to other exchanges.
Facebook also issued a press release last week banning adverts related to cryptocurrencies and Initial Coin Offerings (ICOs). The company hinged the decision on what it termed ‘fraudulent claims’. Facebook, however, stated, that the decision is subject to review
Promoters of several Initial Coin Offerings (ICOs) bolted after collecting investor funds. The lack of regulation in the ICO space, means such funds are unlikely to be recovered.
February may be worse
February has already proven to be an even worse month as the Chinese government has blocked search engines from providing information on cryptocurrencies and ICOs. Several banks have also stopped the purchase of cryptocurrencies with their credit card.
Virgin Money has banned the purchase of cryptocurrencies with credit cards, joining several other banking institutions. Lloyds Bank has announced its own ban on credit purchases, while JP Morgan and Citigroup announced their own ban a few days ago.The banks are taking this step in order not to hold any form of liability arising from losses on these assets.
While the US Senate hearing held this week, did not ask for an outright ban on cryptocurrencies in the country, it pushed for more regulation. It is yet unknown what form this will take place, beyond the current guidelines. Initial Coin offerings in the United States are currently open to only accredited investors. The hearings are billed to continue at a later date.
Bitcoin dropped below the $6000 mark as many investors sold in panic. This then precipitated a further fall in other cryptocurrencies. It has since bounced back to $7800.
What should investors do?
While at face value, the fall is steep, investors that bought bitcoin at a 1000-2000 last year are still up on their investments. The same applies to several other coins. Though price drops tend to be steep in the cryptocurrency space, recoveries tend to follow the same pattern.
Some savvy investors have turned their efforts to applying for numerous Initial Coin Offerings (ICOs) which offer a better return in this downturn.