According to data from coinmarketcap.com, with few exceptions (like Litecoin Cash), essentially every single asset on the top 100 list has dropped by between 5.5% and 24%. Bitcoin itself saw a drop to below $7000, and Bitcoin Cash fell below the $1000 mark. In total the market has dropped by $25 billion at publishing time. But what caused this, and how is the cryptocurrency community reacting? Is this the end of cryptocurrency, or just another bump in the road?
Potential cause – Fear of CFTC Manipulation Probe
It was announced just recently that the CFTC, or US Commodity Futures Trading Commission launched a probe into four cryptocurrency exchanges and started demanding trading data in regards to its investigation. The exchanges allegedly targeted include Coinbase, Bitstamp, itBit, and Kraken.
The investigation appears to be tied to the recent bitcoin futures contracts that were launched by CME Group Inc. late last year.
Read about Bitcoin Futures
The contracts, which launched in December 2017, were met with the highest price increase in the overall cryptocurrency market ever seen before. This, of course, was met by the infamous sharp decline that was observed from January of this year onward. January also happens to be when the first futures contracts would have ended.
The goal of the probe itself is to determine whether or not price manipulation was occurring that would have affected the value of the Bitcoin futures contracts. This in turn could have potentially made a hefty profit for those that bet against Bitcoin.
Why Manipulate the Price?
When we think of price manipulation as a concept, it usually relates to various pump and dump schemes. A pump and dump occurs when a small asset (such as penny stocks or a low volume crypto asset) with a low number of outstanding shares or low liquidity is suddenly targeted with a massive buying campaign. This campaign causes the price to double or triple in a very short period. The perpetrators of the pump and dump then engage the second half of their plan, the dump, by selling all of their holdings at the highest price. This then causes the price to plummet and all other investors to suffer heavy losses. Pump and dumps are illegal almost everywhere, and when perpetrators are caught, the punishments can be severe.
But what the CFTC is investigating this time is a slightly different take on the same theme. Futures contracts are, in many ways, a way to short the market. In other words, the lower the price is from where the contract began, the more profit investors can stand to earn. And so the sudden and massive drop in price leading up to the end of the contracts clearly raised some suspicions.
As for whether or not this probe is directly leading to the drop in price we saw just now, is unclear.
Don’t Fear the Red Days
In response to the recent market drop, the cryptocurrency community has responded largely as it always does. That being, a mixture of fear, skepticism, conspiracy theories, repetition of the HODL mantra, and re-postings of suicide hotline information.
One consistent trend that seems to always appear during these market downturns is individuals claiming that times like this are a perfect time to buy. Some often jest, saying that today is like the
Black Friday of cryptocurrency. That being, everything is on sale, and often at a considerable discount.
Another worthy mentioned of community reactions is the phrase “I believe in the technology”. While at some point in the past, this phrase may have been used in earnest, it appears now to have become a meme of sorts. That being, while many dabble in crypto markets purely to speculate and in hopes of gaining a quick profit, another portion of investors are true believers in the tech and believe that cryptocurrency is here to stay.
However, this refrain seems to only appear en masse during times of massive downswings. It is for this reason that we suspect the phrase has become a meme, or the very least a joke.
Bitcoin’s 301st death?
News outlet 99bitcoins.com keeps track of what it calls Bitcoin Obituaries. It tracks each time that the mainstream media has declared Bitcoin dead. It’s almost certain that with today’s prices dip of going on towards 10%, we will most likely see at least a few further declarations of bitcoin being “dead”.
Again we have to remember that at this time one year ago, bitcoin was trading for less than $3000 each. From that point to this year, the Bitcoin valuation has still increased by more than double. And so perhaps if you are a true believer, you too might see occurrences like today’s as a buying opportunity, or a chance to “fill your bags” at a discount.
Featured Image via coin360.io