Fear Rules The Day

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Although the market has clinged to news that South Korea is to impose tighter regulations on crypto-exchanges, requiring AML/KYC as well as imposing capital gain taxes, it may well be that bitcoin and cryptocurrencies are going through a natural market cycle.

The sell-off at around $20,000 started on December 16th may well be the beginning of a bear market, at least in the short term, after considerable euphoria and perhaps even exuberance.

Of course you can never predict the price, but after a 50% crash and a brief bounce, sentiment might have changed and the market may have entered the fear stage:

Bubble Cycle

What looks like a bull trap may well be a bear trap, so you can never really tell where you are in the cycle save for with hindsight and even then, what looks like a bubble might be just a blip.

But the market does seem to be more interested in bad news than good news, and what might have been very easily ignored – South Koreans just imposing AML requirements like everyone else – seems instead to be used as justification.

The calls of bubble and bubble were becoming deafening. At some point, something had to give, and that something might even be the technology itself, which isn’t yet really ready for mass use.

Bitcoin’s fees skyrocketed to $70. Ethereum’s network was brought to its knees by some cats. And while Bitcoin Cash has plenty of capacity for demand, that too isn’t really ready for mass use.

Scalability, however, is a conceptually seemingly solved problem, but to turn those ideas into reality will take time, and until then all decentralized public blockchains will hit a limit.

It may be one of them has it at 300,000, the other at 3 million and the other at 30 million, vast sums in a way and yet a drip in the ocean in many other ways.

For if we can imagine cryptokitties like dapps tokenizing property, art, and so on, then a lot more scale will be needed. And that’s for just one use case.

The stage we would describe current blockchains is probably the internet at the very first years of the 90s, with very few terrible looking websites, no videos, nor even images, mostly frequented by coders who went through quite a bit of dial-up pain.

Some have compared this year to the dotcom boom, but blockchains don’t really have a Google, nor really even an Altavista. This may instead be the 1994 boom of sorts when the internet first came to public awareness, met by commentators who said it would never be used to read newspapers.

Now they say blockchains will never be used as a currency, or there is no point to decentralized dapps, and as far as the present is concerned they are sort of right. Although some do make payments in crypto, with BCH especially seeing increased merchants adoption, it is very limited.

Therefore expectation may have gotten ahead of reality, and now that the masses are here in a way, they may be wondering… well, what do I do with this? And right now the answer is: not much.

But in a few years time you might be able to do a lot, although whether that is with btc, bch, eth or something else of a like kind, remains to be known.

 

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