The total market capitalization for cryptocurrencies is just above $2 trillion. Every watcher of the coin market is aware that it has massive room for growth considering that many in the traditional finance are taking note of the asset class. However, there is no doubt that the coin market has some factors that may be inhibiting massive adoption, not just from the corporate world, but also among retail investors.
Analysts have wondered the reason for the poor performance of the coin market in 2018 despite an impressive run in 2017 that spawned predictions that the will be valued in the range of tens of thousands of dollars before the end of the year.
So why did Bitcoin and the other altcoins underperform that many investors were almost skeptical whether it is a good idea to keep their funds in the coin market?
Apart from the fact that what was considered a bad year for the Bitcoin and other digital currencies can be technically be considered correction in their prices, there are many other factors that could have contributed to the low price of the coins. These are also responsible for the low rate of adoption without which the price of an asset such as BTC would be trading above $100,000.
History of Adoption
The interest most investors have in Bitcoin was the result of the massive price spike in the fall of 2017. The fear of missing out stemmed from the fact that stories made rounds on how Bitcoin made people rich.
The result is that many investors bought the coin not because they needed it as a means of transfer of value but as an asset they hoped would make them rich.
The result of this approach is disenchantment when the price of Bitcoin started to fall in January this year. Since the cryptocurrency ordinarily required sustained inflow of investment to maintain stability in price, it is not surprising that the value has struggled for stability.
Low Liquidity
Bitcoin volume has been dipping lower for the past six months. This is not unconnected with the culture of hodling. This is the act by which many enthusiast hold the cryptocurrency hoping that the price appreciates.
The trading of Bitcoin in exchanges reduces drastically whenever there are uncertainties about the coin market. These uncertainties generally lead to low trading volume as inflow of funds in the market slows considerably.
This year, the total trade volume of Bitcoin exceeded $2 trillion which is 61 percent more than that of last year in which the total trade volume was $870 billion. Nevertheless, the volume has not translated to comparable growth as seen in 2017 due to the bear market.
Nevertheless, the 2018 volume is interesting because it is a reflection of growing awareness and use of Bitcoin not just as a speculative instruments but a means of transfer of value.
Ease of Use May Hinder Adoption
We all have seen how difficult it is for senior citizens to use new technologies and innovation. Most adopters of Bitcoin are those that do not find it difficult to use because they are tech savvy to some extent.
There are millions of older people that cannot be persuaded to adopt Bitcoin because they do not understand the technology or the reason they should replace the fiat they have used all their lives.
There also is the impact of negative news and misinformation about Bitcoin, especially when people hear of hacks and seeming market ‘crashes’ which is really temporary downturns.
Get Rich Quick Group
There is a consensus among most crypto analysts that what Bitcoin needs to become a widely acceptable means of exchange or currency is widespread adoption. However, this may not happen quickly as long as most adopters consider the cryptocurrency as a speculative instrument instead of a currency.
It is instructive to note that this group of adopters are among the earliest to sell off their coins when there is a market downturn since their primary interest is to make profit.
Absence of Regulation
To some extent, the reason why institutional investors are cautious in entering the market is that they are yet uncertain about the potential of the market for stability.
The principal reason for this is that the coin market is still unregulated and there are few investment firms that would willingly put investors’ funds in a market that regulators may move against in the near future.
This is why it is expected that institutional funds will bring needed liquidity to the coin market if the SEC approves some bitcoin ETFs in the Q1 or Q2 of 2019. The absence of this legitimacy at this level may not augur well for the growth of the market.
Hacks and Theft
Series of hacks, thefts and other criminal activities by cybercriminals have contributed in bad publicity for the crypto ecosystem. The effect of these on the coin market is well known.
For instance, when the Tokyo-based Coincheck was hacked in January, it adversely affected the price of Bitcoin for several hours even though the coins stolen were NEM (XEM).
These have raised more issues on security which has been addresses by the Japanese financial regulator. The prominence of custodial services in the cryptosphere in 2018 is not unconnected with this situation.
In fact, the increased interest in institutional investors in the coin market is a direct consequence of the involvement of custodial services by crypto giants such as BitGo and Coinbase.
Market Manipulation
Bitcoin News Today reported in the past that there has been suspicion that the Bitcoin market is manipulated. Whales who own enormous amount of the cryptocurrency are known to impact the price of the coin whenever they move their hoard.
Although this is not common, these massive coin movements sometimes seem calculative raising suspicion that there may be a network of whales that know and communicate with one another.
Other forms of manipulative tools such as trading bots have been developed and can even become instruments of pump and dump schemes in the market.
ICO Misadventure
The poor performance of ICOs has impacted negatively on the coin market. For instance, there have been reports that up to 10 percent of ICO funds were lost to scams while 80 percent of ICOs failed.
Series of warnings from regulators all over the world made more investors skeptical about the coin market. With many investors discouraged from putting money in the market, the bearish 2018 trend was the result. The good news for the cryptosphere is that use cases have increased in the past couple of year, with notable impacts by decentralized finance (De-Fi) and non-fungible tokens (NFTs).
What else were responsible for the low adoption of Bitcoin even in 2021?
Hey!
I’m kind of newbie with cryptos but I have invested there already something. I was pretty down when I couldn’t invest when it was down (there was some problems with money transfer).
Thanks for explaining things in the way that everyone can understand! Really interesting article! 🙂 Keep up the good work!
I found this post very informative. I definitely learned a lot! Great post! 🙂
Amy
I feel the hype created around the Bitcoin is settled. It is quite difficult to predict where it would move from here. Since the price is low, many new entrants would be eager to buy but in absence of any regulation, people would not take any immediate action. Cryptocurrency ban in some countries has further created doubts about its becoming an acceptable currency at the international stage. Anyways any new technology takes time before finally being accepted.
You’re right Arun. The price is really low now but people are not yet certain that it has settled at the bottom. What we have is a market that is many things to many people so Bitcoin will likely attract more investors with some real high impact news. From then the price will go upwards perhaps above $10,000 but it’ll be a long tome before we experience the tens of thousand predictions we’ve heard so often.