Cryptocurrencies Are Crashing Again

The largest cryptocurrencies are under presure again today - Bitcoin, Ethereum down around 10% - as it seems some anxiety remains ahead of the August 1st scaling decision deadline, chatter about Russian Bitcoin viruses, and a new report from BofA has raised more questions than answers about the future of virtual currencies.

On average major crytos are down around 10%...


With Bitcoin back near $2500...


And Ethereum testing $200 support...


No obvious catalyst but several notes going around include... Concerns over a Bitcoin Virus infecting Russian devices... (via CoinTelegraph)

Russia’s chief presidential advisor on the Internet has stated a Bitcoin mining virus has infected up to 30 percent of Russian computers.


Speaking in interviews with RNS and RBC, Herman Klimenko said that although infection rates varied by region and device, it involved at least 20 percent of machines.


“In regions with lower bandwidth instances are reduced, but we’re looking at 20 to 30 percent of devices being infected - iPhones and Macs are less prone,” he commented.

Elliott-wave guru Prechter is predicting a bear market for Bitcoin.. (via CoinTelegraph)

Market analyst Elliott Prechter has projected that digital currencies, particularly Bitcoin, will experience a sharp decline in the near future. Prechter has correctly forecast the surge of Bitcoin in 2010 when the cryptocurrency’s price was just six cents.


In his July 13, 2017 report, Prechter claimed that the Elliott wave pattern, optimistic psychology, and Blockchain bottlenecks will lead to the collapse of the digital currency market.


"The price activity and manic sentiment that led to present prices have dwarfed even the Tulip mania of nearly 400 years ago. The success of Bitcoin has spawned 800-plus clones (altcoins) and counting, most of which are high-tech, pump-and-dump schemes. Nevertheless, investors have eagerly bid them up.”


Prechter, meanwhile, has correctly predicted Bitcoin’s rise when it was just priced at six cents in September 2010. Elliott Prechter, however, said that the excitement about Bitcoin surpasses the tulip bulb mania in The Netherlands in the early 1600s.


“A mania can be both a mania and a revolution at the same time."

and a big BofA report suggests to sustain a virtuous cycle of rising liquidity & falling vol bitcoin has to gain acceptance as collateral, an unlikely event...

Is bitcoin a currency? A commodity? Neither? A proper store of value like the EUR, T-bills, or gold is measured by 3 factors: safety, liquidity, and return. Diversification is a plus. Bitcoin remains very volatile. But it has experienced a surge in liquidity in the last six months, surpassing $2bn a day. Moreover, bitcoin is uncorrelated to any financial asset, commodity, or currency we study in this note. The flipside of extreme diversification is that there is no way to explain let alone predict returns. Could bitcoin see a virtuous cycle of increased liquidity, lower volatility, attractive returns, and wider acceptance? Possibly, if regulated financial institutions move to allow bitcoin as pledgeable collateral. However, large inherent risks to digital tokens such as fraud, hacking, theft, new protocol adoption, limited acceptance, and that it is not legal tender many places in the world make it an unlikely development.


A wide array of risks obscure the future of cryptocurrencies


When examining the safety of any asset, volatility is not the only source of concern. In the case of bitcoin and other virtual tokens, worries are magnified given that it is not legal tender in many places in the world or regulated by any government bodies. In fact, decentralization is central to bitcoin. As such, risks like fraud, hacking, and outright theft have plagued the cryptocurrency world in recent years. In particular, the surge in initial coin offerings seems hard to justify and creates a risk of fragmentation in the market. Confidence could suffer if many of these offerings turn out to be outright scams to circumvent investor protection regulations. After all, it is hard to "know your client" if a bitcoin transaction happens through an exchange in an obscure jurisdiction. Other issues more specific to the functioning of cryptocurrencies, such as finding an agreement regarding the adoption of certain protocols, are also worth mentioning. For example, should bitcoin split into two digital tokens because miners cannot find common ground, a collapse in confidence and value could follow. Lastly, it is worth noting that cryptocurrency transactions are taxable in many jurisdictions, presenting additional challenges to users that are unfamiliar with the fiscal implications of using bitcoin.


A key step for bitcoin would be to become pledgeable collateral


Still, bitcoin and ethereum have delivered impressive returns so far as fiat currency flowed into these digital tokens. Is it realistic to assume cryptocurrencies will continue to appreciate over time? The dollar price of gold has appreciated over centuries in line with inflation, but some periods have experienced much faster gold price appreciation than others. Moreover, periods of high real interest rates have been particularly damaging for gold returns in the past. In our view, cryptocurrency returns will mostly depend on the faith placed by individuals, corporations, and financial institutions on this emerging technology. As discussed earlier, there are large inherent risks to digital tokens such as fraud, hacking, outright theft, new protocol adoption, limited acceptance, and that it is not legal tender in many places in the world. Moreover, a crucial hurdle remains. Most regulated financial institutions allow their clients to borrow against financial or physical assets, but we are not aware of any major institution that takes cryptocurrency as collateral at the moment. Thus, in our view, a key step for bitcoin would be for it to become pledgeable collateral.

And finally anxiety remains ahead of the fork.