Anyone with even a passing interest in cryptocurrencies has likely heard about the recent volatility in the blockchain markets. Since July 12th, the price of bitcoin went from holding firmly to $11,000 to momentarily taking a dip below $10,000. As I write this, bitcoin is barely into five-digit territory. Unfortunately, we’re in the midst of a crypto bloodbath.
Moreover, it’s not just bitcoin taking the heat. Other digital tokens, including the major ones, have absorbed serious body blows. For example, ethereum hemorrhaged nearly 17% of market value over a 24-hour period. Bitcoin “derivatives,” such as bitcoin cash and bitcoin SV, have suffered similar magnitudes of decline. And notably, litecoin is down below the key psychological $100 level, currently trading hands at $88.
So what caused this ugly crypto bloodbath? Most likely, several headwinds have contributed to the sentiment erosion. I won’t pretend to know every lever at play, nor will I suggest that I know most of the levers.
However, an obvious culprit is the IRS. Over the past weekend, a report leaked that the tax agency’s criminal investigations arm actively searches for crypto wallets. Interestingly, at the time the public learned about this information, bitcoin prices were holding steady at $11,000. But upon release, bitcoin entered a decisively bearish trend channel, sparking the crypto bloodbath.
Don’t Let Crypto Bloodbath Detract from the Transformative Opportunity
Again, I’m sure other explanations for the crypto bloodbath exists. Another possible explanation is market manipulation. Likely, relatively few players control most of the wealth in cryptocurrencies – sound familiar? As such, they can distort pricing through sales designed to trigger a panic.
Because the masses always do, no one can ever hold the whales accountable.
But ultimately, whatever factors that contributed to the crypto bloodbath don’t matter. What’s relevant here is your response. If you sell and give in to panic, you’re only victimizing yourself; first from actualizing paper losses, and second, from robbing yourself out of a transformative investment.
Because here’s the thing everyone must remember: the granularity of cryptocurrencies is a double-edged sword. On one hand, they may have convinced you to buy into bitcoin and other cryptos in the first place. But on the other hand, they potentially create paralysis by analysis.
What I encourage crypto investors to realize is that the blockchain markets represent a true financial revolution. Prior to cryptocurrencies, no one imagined that we could sidestep the global central banking system. Now, we’re able to do that with relative aplomb.
Therefore, it’s central banks that should be panicking, and they are. Just make sure that you’re not getting sucked into the pessimism.