Why is the Crypto Market in Red, and Where Are We Headed?

by Valentin Preobrazhenskiy, founder of LATOKEN

As the popularity of crypto continues to grow, many newbie investors are puzzled and, probably, perplexed by a recent slump in the value of many crypto assets.

As of late January 16, 97 out of the top-100 assets and 288 out of the top-300 assets on CoinMarketCap found themselves in the 24H red zone, with median decline at around -21%.

Ironically, the very fact that more and more people have recently been exchanging their fiat money for cryptocurrencies could be one of the factors contributing to the decline. But there are more. Let’s look at them.

Regulators Come Back into Play

Overall, the current situation resembles that of September 2017, when the ICO market had boomed, surging to a $900M monthly volume, before the Chinese ban on ICO caused a major correction, and the total crypto market cap dipped by over 30% in just two weeks.

This time around, troubling news originated in South Korea, a country so fond of crypto assets that almost all of them trade on Korean exchanges with a 20%-30% premium. Strict laws regarding foreign currency exchange make it impossible to arbitrage without breaking the law, which prompted CoinMarketCap, the #1 source of crypto assets price data, to remove Korean exchanges from its calculations on January 7 without any notice.

That led to a panic sell, causing a 20%-30% decrease across most of the crypto assets. The South Korean government stepped in, announcing on January 15 that it is going to impose stricter regulations on the market, although a ban on cryptocurrency is apparently not in the works.

Regulators in other countries acted along the same lines. China has been escalating its clampdown on cryptocurrency trading, targeting online platforms and mobile apps that offer services similar to crypto exchange. Reportedly, China also intends to reduce the scale of Bitcoin mining in the country.

Complicating things even further, France’s Minister of Economy announced they will take steps to exercise stricter control over crypto assets. Although France is not that big on crypto, South Korea and China definitely are, and their regulatory decisions most likely had a negative impact on the market.

Bigger Volumes, Bigger Issues

As the crypto market grows bigger, it unavoidably faces a lot of scalability issues across the whole current value chain. The networks of the two major cryptocurrencies, Bitcoin and Ethereum, are currently being used nearly to full capacity as unconfirmed transactions start to pile up, prompting average transaction fees to skyrocket.

For instance, Blockchain mempool currently holds over 160 thousand unconfirmed transactions. If you assume 2,000 transaction per block and 10 minutes required to mine one block, it would mean that more than 13 hours without any new transactions is required to get rid of all that backlog. This situation led to a $25-$30 average transaction fee.

The congestion issues in the networks of the two crypto giants, which are collectively responsible for over 50% of total crypto market cap, create a negative backdrop for all crypto assets even though it could also be viewed as a sign of increasing adoption and utilization of crypto.

Exchanges Under Pressure

Another issue that might have contributed to the slump has to do with crypto exchanges. Over the last couple of months, they experienced an enormous influx of users. For instance, Binance saw its number of monthly visits shot up by 600% in December.

So, crypto exchanges are struggling to keep up with demand, and some of them, such as Bitfinex, Bittrex, CEX.io and Binance, closed doors to new users in mid-December (although Binance reopened registration after a short while).

Similarly, technical support and profile verification teams are swamped, and users might have to wait for a reply for up to a week. A major exchange, Kraken, was recently unavailable for more than 48 hours after finding a bug during planned 2-hour maintenance.

Other things to consider

Some other factors might have also played a role in this steep decline. For example, news about Bitconnect, a blockchain startup that was accused of being a Ponzi scheme multiple times, closing their lending platform and cryptocurrency exchange, could affect the market as well.

Also, first CBOE futures contract expired on January 17, and even though it settled at a price of $11 055, the uncertainty and fear of bigger players shorting down Bitcoin might have added to the yesterday’s volatility of the crypto markets.

It’s Going to be Fine (Probably)

Statistics are in favor of the market recovery. We have already seen a 3 similar market corrections after long bull runs last year, but the price has always recovered over the course of a several weeks, and continued its long term growth.

There are fundamental reasons for that: for example, total number of unique Ethereum addresses has grown over 20x, from roughly 1M in January 2017 to 22M we have now, and the number of Bitcoin wallet users have doubled during last year, proving that the adoption rate of cryptocurrencies can be as high as those of the cell phones and the Internet.

Moreover, the institutional investors, from hedge funds to family offices and VCs, as well as high-net-worth individuals are getting more and more serious about the crypto, raising fiat to invest in crypto.

All that is no surprise, considering all the advantages cryptocurrencies provide, like the ease of cross-border transactions, low transaction costs and security.

Navigate the Crypto Volatility Storm with Asset Tokens

All in all, cryptocurrencies remain one of the most volatile, yet attractive investments. The good news is that there’s already a way of diversifying crypto portfolios with more stable coins without converting to fiat. I’m talking about asset tokens, linked to the prices of hard assets. LATOKEN, for example, is on its way of tokenizing assets, ranging from equity and commodities to real estate and works of art.

Those assets can drive the whole industry growth, according to LAT Crypto Research. We estimate that the market capitalization of the asset tokens can exceed $4 trillion by 2025, and they will account for at least 80% of the total cryptocurrency capitalization as market develops.

About LATOKEN

LATOKEN is developing a one-stop multi-asset trading platform, and our goal is to become a leader in the crypto trading market entering Top-20 crypto exchanges by trading volume.

To achieve this goal, LATOKEN is building the first decentralized exchange based on DAG technology (directed acyclic graph) that allows unprecedented trading volumes of up to 100 000 transactions per second.

LA token is now listed on seven exchanges, including OKEX (Top 5), HitBTC (Top 10) and KuCoin (Top 20).

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