While most digital currencies roared into 2018 with a good deal of upward momentum, almost all of them have deflated somewhat in the early weeks of January. The cryptocurrency market saw a significant dip heading into the final portion of the month, with even the biggest names like bitcoin having fallen by double-digit percentages.
For an industry that has done a lot more growing than shrinking in the past year, some investors saw the shift downward as a sign that cryptocurrencies could be failing. Others, however, are taking a more pragmatic approach. There are reasons to believe that this dip in cryptocurrency prices could actually be a good thing for the space in the end.
Draw the Financial Reality Closer to the Fundamental Reality
Cryptocurrency expert and author Chris Burniske indicated in an interview with CNBC that "the markets over the last year have certainly appreciated more quickly than the fundamentals have, and this is a shakeout to hopefully draw the financial reality closer to the fundamental reality."
The numbers support this assertion:
bitcoin prices surged by 2,000% over 12 months, peaking at almost $20,000 per coin in December 2017. In the process, the leading digital currency prompted the launch of futures contracts on some of the biggest exchanges in the world.
Other currencies, like ethereum and ripple, made even more significant gains in value over the course of the year, relative to where they began 2017
All of this has led analysts to suggest that 2017 was a year of excessive speculation in the digital currency industry, but that period may be coming to an end.
In just the past several days, bitcoin's price plunged below $10,000 per coin, while ethereum dropped by more than 20% and ripple fell back below $1 per token.
Raising The Bar
It may be that in the wake of this dip in the market, ICOs and cryptocurrencies themselves face a higher bar to success. In the flurry of digital currency activity in 2017, it was not uncommon for companies to add "blockchain" to their names and see a resulting boost in stock prices, even if they changed nothing else.
Now, "the days of raising hundreds of millions of dollars on just a whitepaper are over," according to BitBull Capital cryptofund CEO Joe DiPasquale.
At the same time, digital currency exchange Bitconnect announced this week that it would close its platform. Michael Novogratz, formerly of Fortress, tweeted that Bitconnect "seems like a scam" in November 2017. Some analysts see the shifting landscape as being better able to weed out potentially nefarious actors in the future.
Investing in cryptocurrencies and other
Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions.
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