Peter Du: A Variety of Factors Led to the Collapse of Crypto Markets Last Year
Ether made headlines as it fell off yet another price cliff at the end of last year. At the beginning of November, the distributed computing platform’s token was hovering around the $200 dollar mark. Then, over the span of just a few weeks, it lost more than half of its value. The state of ETH prices is even more staggering given last year’s bull run. In January of last year, the token surpassed the $1400 dollar mark.
A worrisome situation for Ethereum investors
One of the main reasons for ETH’s price decline is confusion and uncertainty among investors. Traders that made their first cryptocurrency purchases last year when prices were high seem to have lost faith in the entire industry.
Controversy around last November’s Bitcoin Cash hard fork may have contributed to first time investors’ doubt. After the fork, Forbes contributor Peter Tchir concluded that “cryptocurrencies in general have lost their luster.”
Companies that raised millions of dollars through their ICOs last year are now selling Ether and other cryptocurrency assets that they had received to avoid further losses. According to cryptocurrency research group Diar, blockchain companies sold 222,615 ETH in November.
Rampant speculation has hurt the industry
Du Capital founder, blockchain expert and experienced ICO investor Peter Du believes that the unrealistic expectations around new blockchain technologies is one of the main reasons why crypto markets are in the state they are in today.
“To be sure, maintaining hundreds of billions of dollars in valuations supported by unsecured coin issuance was unrealistic and in the long-term, unsustainable,” Du said.
Du went on to state that once the U.S. Securities and Exchange Commission issued stricter regulations on ICOs, reality set in and skyrocketing Ether prices came back down to Earth. Performance bottlenecks, he thinks, created by Ethereum’s insufficient underlying infrastructure may have also played a part in the asset’s price decline.
Balanced regulation needed
In all fairness, some criticism is justified. Former U.S. President Bill Clinton is one of the proponents of less regulation. At a cryptocurrency industry conference last October, Clinton said that regulators were “killing the goose that laid the golden egg.” He went on to say that “you can’t apply [an] old regulatory regime to a new technology.”
Perhaps the most heavily criticized piece of cryptocurrency legislation in the US is New York’s BitLicense. Critics of BitLicense say that it’s vaguely worded and places too great of a financial burden on blockchain startups.
When BitLicense was first proposed, MIT researchers said that it had “critical flaws.” Jesse Powell of Kraken said that BitLicense would “stifle innovation” and make it impossible to run a profitable crypto exchange in the state. After New York passed the bill that created BitLicense, Kraken and several other cryptocurrency exchanges pulled out of New York. Perianne Boring of the Chamber of Digital Commerce called BitLicense “worrisome” and said that other states might use BitLicense as a template.
Boring’s prediction was confirmed when a bill that would create similar regulation before California legislatures. Coinfirm CEO Pawel Kuskowski commented that the cryptocurrency bill would have an “even more catastrophic effect” than BitLicense. The proposed bill was amended and then died but concerns about the direction of cryptocurrency legislation in California remain. Lack of clear policy has created an uncertain regulatory environment in one of America’s most populous states.
Other technology embracing states, such as Connecticut and Washington, have also imposed blockchain regulations perceived as cumbersome by enthusiasts. However, Du as a contrarian, thinks that this isn’t necessarily a bad thing and real value must be created in order to achieve what it set out to do. “Ethereum as an infrastructure blockchain that other coins hinged on, was a beneficiary, and grew in valuation as a result, but without having the equivalent growth in infrastructure, ecosystem and mass adoptable applications.” In the end, Ethereum’s success will mean the industry’s success, he thinks.
What’s next for blockchain?
Despite the problems that blockchain companies are dealing with today, Du is upbeat about the industry’s future.
“Not all is gloom and if anything, we must learn from this. At the end of the day, discerning investors should care less about short-term speculation and more about solidifying building blocks in the long-term to make blockchain a formidable and reliable ecosystem.”
Authorities in the US and elsewhere can also contribute by creating smart regulatory frameworks that benefit and protect consumers while also providing stability for blockchain businesses. Most cryptocurrency business leaders agree that the unclear and unfair rules that are currently in place are preventing the cryptocurrency industry from realizing its full potential.
Images courtesy of Shutterstock, Pixabay.
[Editor’s Note: This is a guest article authored by Alex Munkachy.]