What happened to the cryptocurrency bubble? | Markets

What happened to the cryptocurrency bubble? | Markets

A year ago, bitcoin was the star of the markets. Although many analysts warned of a bubble that would explode at any time, the price continued to climb positions. A bitcoin came to be worth more than $ 20,000, 140 times the current price of an Aena share (the most expensive of the Ibex 35), and almost double the annual interprofessional minimum wage (SMI) in Spain.

However, the goose that lays the golden eggs looks like it could have reached its limit. Something more than a year after reaching this maximum – December 17, 2017 recorded its highest price – the bitcoin is worth 80% less, around 3,800 dollars. That is, in 12 months the collapse of the main cryptocurrency has exceeded that suffered by the Nasdaq in two years after the bursting of the dotcom bubble.

"The cryptocurrency bubble continues to deflate at a very fast rate, but economists are not surprised. The economic consequences of this collapse are limited because the bubble was never too popular. The consequences will be more on a personal level, "explains Paul Donovan, an analyst at UBS.

Ignacio de la Torre, chief economist of Arcano, already predicted this crash of the bitcoin. In December of 2017, it published a report that predicted what would happen in the following 12 months, contradicting the premise of those who rejected the existence of a bubble. According to these, the demand for digital currency was infinite and would end with traditional money, while the supply was limited, since only 21 trillion bitcoins could be issued. However, as explained by De la Torre, neither the demand has been infinite, because few funds have opted to invest in this alternative asset, nor has it managed to replace money due to its high volatility, over 60%, compared to less than 3% of the euro or the dollar. And the offer has not been limited either, because numerous cryptocurrencies have emerged.

So, what is the rush for the bitcoin of a year ago? The Bloomberg Galaxy Crypto index, which measures the performance of cryptocurrency most traded in dollars, has plummeted 80% in the last 12 months, from 1,381.41 points on December 29, 2017 to 260 at the end of 2018 .

The value of the five main virtual currencies by market capitalization has also fallen sharply. According to the data of Coinmarketcap, the stock market capitalization of bitcoin hovered at the end of 2018 the 65,300 million dollars, although it had reached 320,000 million a year ago, while the Ripple, which reached its highest price on January 8, 2018, it would be reduced to 14,400 million dollars, compared to 130,000 million at the time, and the Ethereum would have gone from 136,000 million of its highs of mid-January last year to 13,400 million. Experts blame this collapse on regulation and frequent attacks on criptodivisas trading platforms.

Between the end of 2017 and the beginning of 2018, regulators from the European Union, the US and Spain emphasized the precautions that investors should have and tried to "bring order to this market", which resulted in an impact on the value of bitcoin contributions, explains Juan Palomino, criminal lawyer of the firm Pérez Llorca specialist in cryptocurrencies in Spain. The National Securities Market Commission (CNMV) and the Bank of Spain have warned on several occasions of the risks involved in operating these digital currencies as well as the fraudulent use that can be given to them, to launder money or finance terrorist activities. In fact, the Tax Agency controls 15,000 taxpayers who made transactions with cryptocurrencies in the last year in order to declare the benefits they have obtained from their sale. And is that at the level of taxes, these operations must be declared as if they were acquisitions and sales of shares of a publicly traded company.

This regulation of the market has also been a consequence of scams and hacking of platforms that operate with cryptocurrencies, recalls De la Torre. In the first half of 2018, the thefts amounted to 1,100 million dollars and dragged the value of digital currency with them. In early January there was the largest cryptocurrency theft in history: 553 million dollars after the Coinchek hack, which caused the bitcoin to plummet by 10% in a single session. Six months later, the Korean platform Coinrail was attacked and 30% of the currencies it stored were lost (around 30 million euros), with another 10% drop in the value of the bitcoin as a consequence.

Michael Novogratz, CEO of the bank specializing in cryptocurrency Galaxy Digital and former fund manager and partner of Goldman Sachs, believes that the bitcoin could have left behind the strong volatility of the last year and in the near future believes that its value will oscillate between 3,000 and the $ 6,000 in the near future.

"2018 has been the year of takeoff, 2019 will be the consolidation and the organization of the market", underlines Palomino. In his opinion, new cryptocurrencies will continue to emerge, but with the criteria established by the regulators and with a value far from the almost 20,000 dollars reached by the bitcoin, which corresponded, in his words, to mere "speculation".

One year in the futures market

  • Bitcoin futures contracts were launched in December 2017 in the largest futures market in the world, the CME of Chicago. Its debut coincided with the maximum of cryptocurrency and is that the high demand recorded a week before, the day they began to be negotiated on the CBOE platform in Chicago, even caused problems in the system.
  • The bitcoin futures will also reach the Nasdaq, the second largest stock exchange in the world. They will do so throughout the first half of 2019, although there was a similar announcement a year ago that did not materialize.


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