Earlier this March, the cryptocurrency market took a massive hit in terms of price. The total market capitalisation went from $372 billion to $309 billion in just one day. Bitcoin was the most affected in this $60 billion variation. Although the digital market picked up from this crash later on, it never caught up with the $560 billion made in December last year.
In other words, what saw an all-time high of a monumental $828 billion started to fall down slowly. As a result, people’s interest in investing in cryptocurrency looked bleak in the market. Here are the possible reasons why the crypto market may have gone down so abruptly in the last one year.
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The Kobayashi Incident
Where it all started: The controversial bitcoin exchange Mt.Gox, which went bankrupt in 2014 due to multiple security breaches in their system, can be said to be an indirect factor for the downfall of Bitcoin in early 2018.
That’s because Nobuaki Kobayashi, the primary trustee of Mt.Gox sold an undisclosed amount of Bitcoin and Bitcoin Cash between December 2017 and January 2018. Cryptocurrency experts and enthusiasts alike believe that this event might have had a strong impact on the price dip.
A report said that Kobayashi’s selling of Bitcoins led to the price being dropped as far as by $6,000 for 2018. Although the trustee’s actions were to credit funds for customers who lost theirs to the Mt.Gox’s hack in 2014, it became less pronounced once bitcoin price started to fall.
You can read the complete Mt.Gox’s creditors report here.
Aftermath: Customers and critics were not happy with the way Kobayashi took away with selling bitcoins in the end. One financial media reported “Members of the crypto community have (understandably) been expressing their frustrations with the situation on Reddit: “Why didn’t [Kobayashi] sell the BTC at auction like other assets often get sold during bankruptcy? If he sold on the spot market only an idiot would think you wouldn’t suffer slippage,” Reddit user bitradr wrote.
Ever since then, Bitcoin never really rose to its peak price after December 2017. Similarly, other currencies witnessed the same trend with prices being low and consistent from then on.
Another incident at the start of this year was a large scale hack on cryptocurrency exchange Coincheck Inc. With 523 million NEM coins worth $534 million approximately being stolen, Coincheck’s hack was bigger than Mt.Gox’s in 2014 and was dubbed the ‘biggest theft in the history of the world’.
Crypto users were instilled with a fear of losing out their digital currency albeit the hack was only on this type of currency. As a result, it left a bad taste amongst users following which they either migrated to other currencies/exchange or stopped with crypto transactions altogether. Despite this unfavourable outcome, the NEM user community remained stable and the market did not observe a steep dive.
Restricting Crypto Activity
Incidents like these have made many players such as banking and finance sectors enforcing restrictions on cryptocurrencies. Furthermore, governments in countries such as India, China and Russia have a strong stance against trading crypto. In fact, earlier this year India announced that crypto was not used legally in financial transactions. Finance Minister Arun Jaitley told media that the Indian government ‘does not consider cryptocurrencies legal tender or coin and will take all measures to eliminate the use of these crypto-assets in financing illegitimate activities or as part of the payment system.’
Overall, virtual currency will continue to face flak due to vulnerabilities present in the system which, as a consequence will lead miscreants finding new ways to hack crypto exchanges.