Cryptocurrency Casualties Keep Piling Up.

Cryptocurrency Sector Plunges 45% in 11 Days.

After a very quiet summer, the Cryptocurrency Sector has suffered yet another Waterfall Decline this year.  According to Coin Market Cap (https://coinmarketcap.com/charts/), cryptocurrencies have endured 4 of these horrific drops in the last 11 months as follows:

  1. 45% in 10 days from January 7th ($831 Billion) to January 17th ($466 Billion).
  2. 50% in 9 days from January 28th ($595 Billion) to February 6th ($297 Billion).
  3. 45% in 28 days from February 20th ($507 Billion to March 18th ($297 Billion).
  4. 45% in 12 days from November 14th ($210 Billion) to November 25th ($115 Billion).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Latest Waterfall Blamed on the Bitcoin Cash “Hard Fork”.

A “Hard Fork” occurs when a particular Cryptocurrency splits into two entities.  This results when software developers and other participants can’t agree on the nature of updates to the architecture.

Neither Bitcoin, nor its technology, is “owned” by any one person or institution.  As a result, no one individual is responsible for Bitcoin, its spinoffs, or the various transactions.

Its technology is referred to as “open source”, which has the primary advantage of transparency.  However, interested parties such as “miners” and developers may disagree as to the future direction of the protocol.  When that’s the case, the “Blockchain” is divided up into two.  A “Blockchain” is just a fancy term for a transparent, cumulative transaction ledger.  At the completion of the “hard fork”, each set of players creates a new identity and continues its business.

Bitcoin has spun off Bitcoin Cash, Bitcoin Gold, and Bitcoin Diamonds.  Bitcoin Cash (BCH) is now Bitcoin Cash (BCH) and Bitcoin SV (BCHSV).  A holder of Bitcoin Cash before the hard fork, received proportionate ownership in the new BCH and BCHSV.  Like a stock split or corporate spinoff, there is NO gain or loss of value from the “hard fork”.

Currently BCH trades at just below $200 and BCHSV for $102.  A holder of BCH pre-“hard fork” would have had coins worth $302 ($200 + $102).

“Hard Forks” are neither new nor affect value directly.  They are known, have occurred many times before, and will again in the future.  The timing of the recent market plunge and the Bitcoin Cash hard fork are most likely coincidental.

For more on the Bitcoin Cash hard fork see: (https://www.investopedia.com/news/all-about-bitcoin-cash-hard-fork).

Overstock.com Ditches Bitcoin to Focus on Its Own Cryptocurrency.

The Cryptocurrency Sector has now lost about 85% from its peak of $830 Billion to its value of $115 Billion.  Yet, there are few signs of capitulation, fear, or panic.  To the contrary, optimism continues to abound.

Retailer Overstock.com (OSTK), Bitcoin’s largest customer, has put its retail business up for sale and will focus on developing its own Cryptocurrency tZero.  OSTK has already invested $175 Million in tZero since 2015.

Overstock has lost $118 million so far in 2018.  Those losses include $39 Million in development for its Crypto.

Overstock does not have a stellar track record.  They’ve lost money for years.  Nevertheless, the large financial commitment to Cryptocurrencies by the company, its management, and shareholders has to be viewed as very positive development.  The stock leaped 23% on the news.

The other aspect to this corporate transformation may be the most important one.  If OSTK becomes a Cryptocurrency company, the opportunity to actually “invest” will be real.  OSTK is a publicly traded corporation with audited financials.  If their play in Crypto-ville pays off, presumably this would benefit investors, NOT holders of the Cryptocurrency.

Ripple (XRP) has reportedly made great strides to facilitating transactions via Western Union and Money Gram.  However, the economic benefits belong to the shareholders of Ripple Labs, XRP’s parent (https://markonomics101.com/2018/09/24/ripples-triple-gives-new-hope-to-cryptocurrency-investors/) It is unclear, in most cases, whether possession of a Cryptocurrency provides the holder with a claim to anything.

It is even debated among legal circles if Bitcoin is even legal to own (https://www.ccn.com/legal-experts-conclude-bitcoin-may-not-be-legally-possible-to-possess/).

Cryptocurrencies Births and Deaths.

The exact number of Cryptocurrencies is unknown.  Six months ago, industry sources recognized about 1600.  Today, that number varies widely.  Two websites who track Cryptocurrency prices and market capitalization in real time are: https://www.bitscreener.com and https://www.coinmarketcap.com.  These two very credible sites vary widely in terms of cryptocurrency population estimates.  BitScreener measures 2747 individual coins while CoinMarketCap prices 2071.

A reason for the difference has to do with what constitutes a “dead currency”.  With so many entrants, some never see the light of day or even trade once.  Others may trade once or twice, and others are pure scams.  No entity is “responsible” for ascertaining the situation surrounding the many issues within the sector.

Some studies have concluded that as many as 1000 individual issues are “dead” (https://www.ccn.com/research-over-1000-cryptocurrencies-are-dead-projects/).  However, no true or accurate “body count” is available.  In general, Cryptocurrencies have no reporting or filing requirements.

TechCrunch (https://techcrunch.com/2018/06/29/thousands-of-cryptocurrency-projects-are-already-dead/) reports the number of Crypto-deaths could be in the thousands in 2018 alone.

According to TechCrunch, the massive volume of cash flooding these projects is the major problem.  Scam and dead ICOs raised $1 billion in 2017 with nearly 300 new entrants suspected.

Two website collect information about “dead” coins: Coinopsy (https://www.coinopsy.com/dead-coins/) and Dead Coins (https://deadcoins.com/).  Coins are defined as “dead” when it appears that all activity, including website updates, has ceased.  They also consider a coin “dead” after 90 days without any transactions.

While many are dying, Venezuela has chosen to launch the Petro, a crude oil-backed currency to effectuate OPEC oil deals.  Despite the shellacking taken by the sector, it still has its share of believers and new investors.

Cryptocurrencies Are Counting on Youth.

Proponents point out that 8% of the population own Cryptocurrencies as “investments”.  Of those, 5% own Bitcoin (https://thechain.media/how-many-people-invest-in-cryptocurrency).

The Demographics become much more favorable when one looks at millennials.  About 18% percent of College Students, according to Forbes, either own or have owned Cryptocurrencies (https://www.forbes.com/sites/billybambrough/2018/08/29/bitcoin-survey-suggests-bright-future-for-cryptocurrency/#3e9307e83010).

The study reported by Forbes did not break down the student population who reported “investing” in Cryptocurrencies.  However, with $1.5 Trillion of Student Loan Debt outstanding, and the default rate rising, one wonders how such a financially stretched demographic could afford to take this type of risk.

Valuation Remains a Poltergeist.

Regardless of how Cryptocurrencies become integrated into our lives, the issue of value will remain.  With as many as 2700 Cryptocurrencies existing, most of those will not survive.  If the Dot Com Bubble is any guide, a handful of stronger issues might last but they will need some additional technological evolution before they will be universally adopted.

Even if they become universally adopted, they may still never have any intrinsic value.  It remains prudent to wait the situation out, despite lower prices and the perception of cheapness.

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