Bitcoin Market Nightmares: Whales and HODLers to Blame

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Bitcoin has lost over 75 percent of its value within the past year, and many less popular cryptocurrencies are currently on the verge of going completely belly-up. The most recent roller coaster market-plunge occurred within the past month and has left many HODLers and crypto investors strung out.

So What Caused Bitcoin’s Price to Plummet?

To get a logical answer to this question, it is important to first look at the circumstances that led to the 2017 bitcoin price escalation and the ecosystem that existed before its rise. Also worth noting are factors that led to BTC’s precipitous decline at the beginning of the year.

Looking at the period before BTC’s meteoric rise in 2017, Bitcoin was mainly popular among smaller close-knit groups of enthusiasts, and traders who mostly peddled black-market paraphernalia. This millpond ecosystem and the Silk Road marketplace, in particular, are credited for having contributed immensely to bitcoin’s growth during its early stages.

Founded by Ross Ulbricht in 2011, just two years after the invention of Bitcoin, Silk Road’s one million customers primarily relied on bitcoin to transact. This and other related communities are believed to have helped prop up bitcoin’s value as a medium of exchange, at least initially, and enabled it to achieve steady growth through sustained demand.

What triggered the 2017 price upswing was the entry of HODLers and institutional players who had started to take notice of its potential. They triggered an initial price spike led to a series of hikes, catalyzed by a mad dash to acquire the cryptocurrency by mainstream players. The situation was much like the gold-rush days of old. In this instance, the fear of missing out (FOMO) drove demand.

Consequently, bitcoin’s value rose from $1,188 in March 2017 and reached its apex at $19,650 in December, an impressive 1,654 percent price surge in just nine months. The eventual burst in 2018 occurred after market-growth reached unsustainable levels.

This, and what pundits believe to be large-scale price manipulation moves, is blamed for the huge uptick that occurred between the months of August 2017 and February 2018, and the subsequent market slowdown.

Right now, many analysts, including Phillip Nunn, CEO at Wealth Chain Capital, have affirmed that the recent steep market plunge is a result of large-scale price suppression by experienced futures traders and whales. It is believed that some experienced traders and companies profited greatly from the recent price slide after shorting bitcoin futures.

The Risk of Having Institutional Players at This Stage

The fact that there has been a sharp increase in whales in the bitcoin market in recent months is a worrying predicament and a risk unto itself. Especially now that there is little hope of positive price triggers in the near future, such as a bitcoin ETF (Exchange Traded Funds) approval.

The whales pose a risk to smaller investors because they already possess the resources to manipulate markets. Some have already pumped tens of millions of dollars into the sector and are not prepared to face a recusal. As such, the market should brace itself for waves of sophisticated market manipulation schemes.

It is estimated that only a few hundred people hold about 40 percent of bitcoin and that these people probably know each other and communicate on a regular basis. This means that bitcoin is not as decentralized as it’s been made out to be. In addition, market regulation is still a major challenge and leaves the industry open to exploitation.

Its Use as a Medium of Exchange Greatly Affects Bitcoin’s Value

Bitcoin’s is experiencing a decline as a medium of exchange in commerce. According to a research report published by Bloomberg in August, bitcoin mercantile volumes were down to $60 million from a peak of $411 million in September last year. The news network obtained this data from 17 major crypto merchant-processing services. According to the analysis, customers currently appear to avoid using the cryptocurrency for transactions.

As mentioned earlier, sustained demand for the crypto-coin is fundamental in attaining a stable value. As demand support diminishes, it will become harder to make out a strong cryptocurrency market bottom.

Unlike national currencies, where central banks control value and maintain use and circulation within economies, cryptocurrencies have no such mechanisms.

Ultimately, the bitcoin’s value is likely to stay under the influence of the whales. Of course, some events such as ETFs can influence bitcoin prices. However, these are rare occurrences that have yet to happen and are unlikely to in the near future given the turbulent state of the sector.

Is Bitcoin Doomed?

The bitcoin market is still the largest in the cryptocurrency industry by market capitalization. As things stand, a whole set of industries has been built around it.

Some of the biggest names on Wall Street had already started to push for wider adaptation of the digital currency. Intercontinental Exchange, which owns the New York Stock Exchange is currently working on a bitcoin futures trading platform dubbed Bakkt.

And in October, Fidelity Investments, a wealth management and financial planning behemoth with over 27 million customers, announced plans to offer crypto custodial services to investors. This and related efforts by established companies is bound to positively impact bitcoin’s growth at some point.

What greater integration of bitcoin into world financial systems means for investors is that a sizeable price upswing would have highly magnified effects.

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