Crazy weekend: investors questioned unpredictable cryptocurrencies

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The cryptocurrency market experienced an unusual weekend, even by the standards of this eccentric industry. Bitcoin exchange rate fell by 15% at once, Ethereum – by almost one-fifth. The Dogecoin currency, which appeared as a joke at all, has doubled in one trading day. Amid all this, the market capitalization of cryptocurrency exchange Coinbase, which just passed the IPO, has surpassed the value of the New York Stock Exchange. These perturbations indicate that the cryptocurrency market is still unstable (despite its increased capacity by orders of magnitude), and this may disappoint many investors, especially beginners, say experts interviewed by Izvestia.

Last week, bitcoin reached another all-time high of $ 64.87 thousand only to collapse by 15% within a few hours. We managed to partially compensate for the losses, but the rate of the most popular cryptocurrency is still at the March level, which seems to be an incredible pullback by recent standards.


Photo: Global Look Press

The steep rally in the previous days was a reflection of an IPO by the largest cryptocurrency exchange, Coinbase. Last Wednesday, it placed its shares and, according to the results, received an estimate of $ 79 billion. An excellent figure for the exchange, whose revenue in the first quarter was $ 1.8 billion, and net profit was $ 800 million. For comparison, for the same period last year its the total income did not even reach $ 200 million, and by the end of 2019, when the “cue ball” was trading at $ 5-6 thousand, it received a net loss at all. So the super-successful placement was the result of the colossal growth in the popularity of cryptocurrencies in the last year – a period of epidemic and economic crisis.

Coinbase’s IPO, in turn, launched a wave of euphoria in the cryptocurrency markets. In a few days, the quotes of bitcoin, ether and other virtual currency units broke new records. Compared to the beginning of the year (when many said that the peak had already been reached), they rose by more than two times. But all this pales in comparison with the extravaganza of the Dogecoin cryptocurrency, which jumped twice in a day last Friday, which is something fantastic even by the standards of cryptocurrencies

This coin was jokingly created by programmers Billy Markus and Jackson Palmer in 2014, amid the very first wave of cryptocurrency mania (in those days, Bitcoin was only worth a few hundred dollars, and it seemed an incredibly high price). but the blockchain system behind Dogecoin doesn’t even claim to be of any practical importance. And yet they buy it. The capitalization of the currency amounted to 36 billion dollars at the end of the last working week (more than the hotel chain Hilton or the telecommunications giant Motorola), having risen by 13,400% over the year.


Photo: Global Look Press / Yuriko Nakao

Dogecoin, which entered the top 10 cryptocurrencies in the world, is growing almost exclusively thanks to Elon Musk, who periodically posts tweets indicating this tool. It was the same with several shares, which soared 2-3 times only after one mention of them by Mask, ”Nikolai Pereslavsky, an employee of the Department of Economic and Financial Research of the CMS Institute, explained to Izvestia.

Be that as it may, on the weekend the music suddenly stopped playing and a correction began, more like a collapse. The market has fallen several times this year, but the simultaneous collapse of most tokens by 15-20% is a rare phenomenon in the current circumstances. In the past, such downturns were not surprising as the scale of trading itself was rather modest. Now the total capitalization of cryptocurrencies is $ 2.25 trillion, which is comparable to the GDP of France or the UK. Normally, it is assumed that such a large market should not collapse so sharply.

– For the crypto market, at one point in time, there were many negative factors at once, this is just an objective process. This is the entrance to the stock market of a crypto exchange with subsequent sales, and a fire at a power plant in China (after which the trading volume collapsed), and so on, ” said Vladislav Bulochnikov, founder of the Chatex p2p cryptocurrency platform. – All these factors have developed in one short period of time, and the market is going through a period of instability.

According to Pereslavsky, the troubles began due to statements by representatives of a number of states that cryptocurrencies are a dubious financial instrument – but not only.

Image of bitcoin on the door of the store

Photo: Global Look Press / Artur Widak

Several factors have influenced Bitcoin. First, concerns about restrictions on operations with it and a complete ban. For example, Turkey will completely ban the use of bitcoin as a currency to pay for goods and services from April 30, and the United States may take action in view of money laundering through cryptocurrencies. Second point – these are power outages in some parts of China, which seriously affected the capacity of a huge number of mining farms. And the third factor is this is a commonplace overbought market. On April 14, Bitcoin almost reached a value of 65 thousand dollars, and a pullback from the maximum values ​​- this is quite normal not only in the crypto market, but also in the stock market.

Sunday’s failure and the lack of a clear market recovery at the beginning of this week made us see in the long term a possible end to the “bullish” hysteria that has been going on for several months in the virtual currency market. Indeed, the “crypt” now resembles the state of the market for Internet companies in the United States in 1999-2000, when they rose in price several times without a significant increase in revenue. As a result, the dot-com bubble burst, and most of the firms, then quoted at exorbitant levels, simply did not survive. Over time, many companies matured and became world leaders in terms of sales and value, but the market recovery took more than ten years.

The very logic of the market forces you to keep this in mind, and some investors, perhaps, will not remain deaf to this warning.

– The correction had been expected for a long time, and it was clear that serious reasons were needed for this. As a result, the risks of the cryptocurrency market really showed up right away, and investors are currently overestimating the stability and value of this asset, ” Bulochnikov believes.

According to Nikolai Pereslavsky, in the current situation there is another additional factor – an unprecedented pumping of the market not only with liquidity for financial institutions, but also with direct distribution of money to the population.

Mining farm

Photo: Izvestia / Zurab Javakhadze

– We must not forget that approximately 40% of the “helicopter” money that Biden allocated as material assistance to the Americans during the pandemic was planned to be invested in both stock markets and cryptocurrencies. But volatility and the risk of large losses, especially with the use of leverage and margin trading, should discourage at least newcomers to the markets from investing in cryptocurrencies. Moreover, even now it is difficult to call it an investment. There is much more volatility, and the charts of the main cryptocurrencies are similar to speculative ones, and at any moment they can seriously fall in price, up to the values ​​of a year ago.

Famed exchange analyst Jim Cramer, who sold bitcoin last week to pay off his mortgage, is of the same opinion. For other big investors like Mike Novogratz, one of the biggest crypto enthusiasts, this is an opportunity to go deeper into the market while the rate is relatively low. In March, he assessed the likelihood that Bitcoin will reach $ 100,000 as very high.

If cryptocurrencies do crash, or at least take a breather by hitting a plateau, that could be good news for the entire global economy. The fact is that exorbitant quotes lead to the growing popularity of mining, for which technology is needed. But the supply of semiconductors in recent months has been going through a bottleneck, and there is no reason to hope for their growth in the foreseeable future. Bitcoin and other virtual currencies thereby deprive the real sector of the economy of the necessary chips – colossal problems have already arisen, for example, with automakers. With a decrease in the rate of popularity, mining will diminish, which will allow semiconductor consumers to breathe a little more freely. As well as PC gamers, for whom the mining boom has set “prohibitive” prices for the most important components – video cards in recent months.