Some $600 billion has been wiped out of the crypto market cap in about 12 weeks, making this the biggest crash by dollar amount in crypto history.
But why? What changed exactly in December and what changed to such extent and so quickly for more than half a trillion to be lost?
The simplest answer is no one was left to buy, but why did so many sell, instead of hold? Is the entire space just a big speculatory herd, quick to the trigger either of sell or buy? Moving together effectively as one, with holders a small Spartan army?
Maybe, but sentiment alone perhaps can’t easily explain the movement of a currency that goes from $50 to $1,000 to $150, to $20,000 then down to $5,000, or at least it would perhaps be too simplistic.
So first to stand trial, pleading guilty as charged, or should do so, are miners. They run huge farms, even for ethereum but especially for bitcoin. Usually hiring many people, constantly buying or manufacturing more hardware, more land, more energy, more everything, in a race for higher and higher Proof of Work (PoW) hashrate to god knows where.
They mine 1,800 bitcoins a day and 20,000 eth, translated to around $20 million every single day. They probably sell much of it, if not all of it, to keep up with the race, to pay for electricity, employees, hardware and all else.
That means there’s a constant sell pressure of some $7.3 billion a year. More for bitcoin, almost double that at some point, because they had stupendously high fees that went to pay these rich miners. Fees that at one point reached 1,800 bitcoins per day in combination, making it a total gain of 3,600 bitcoin every single day for btc miners during that somewhat brief period.
Those are some huge numbers. Therefore if buying slows down, instead of an equilibrium of sorts you get price falls due to miners constantly selling.
That could easily explain this yoyo volatility, especially when we consider what happens at a certain point, at the magical Karl Marx unit of labour value measurement. That is, at the cost of production for one BTC.
Miners rarely reveal such costs, but it is usually far lower than you’d think, at least for some of them. Here we get brutal capitalistic ruthlessness, as for some of them bankruptcy is guaranteed.
Because once price nears or falls below that cost level, you’d think miners would stop selling and would try and hold out for a price rise.
But the cost level of one miner might be different than the cost level of another, thus he might keep on selling. Ergo, guaranteed bankruptcy for some of them, something which has often happened including with what once were very big miners.
This keeps the wheel turning, with once big miners becoming insignificant and new ones rising. But as a class miners have not shown much intelligence.
And if we are to pass judgment on our guilty verdict with no bias, fear, nor favor, it may well be their lack of a proactive approach could have been caused due to the perhaps unforeseeable fact they became so centralized, the slightly more unforeseeable fact this centralized mining favored remote regions, and the probably completely unforeseeable fact that it wouldn’t be Americans or the west leading it.
Because if you are in the mining business you would want to increase the usage of bitcoin or any other crypto you mine by urging your suppliers, employees, anyone really, to accept it for payments.
Haters would call it a bribe, but in ruthless capitalism one easy way to achieve that would be to offer a premium if they accept crypto payments. The cost would be negligible, but the benefits potentially vast.
The fact that centralized miners have failed to be a center of adoption and have failed to do a lot more than they could to increase adoption, especially considering their huge profits, is just one factor among many why a lot of the crypto ecosystem seems to be turning against them.
For our part, we’ll never forgive them for becoming so utterly greedy that they increased fees to $70 based on one excuse or another.
And while some might say it was primarily developers that did so, we blame miners first and foremost for they are the ones who sided with those developers in February 2016 and ever since, including in the New York May 2017 agreement.
Nor do the ethereum miners court any forgiveness for being unable to handle some cats based on what appeared to us to be merely excuses.
That they might limit capacity to keep fees high was speculated long, long ago, but that they did is unforgivable in our view, with it just one factor among many adding to a backlash as calls for a PoW fork to prevent ASICs reach fever pitch across many communities.
But Nakamoto, the genius, has a solution. Miners’ reward will be slashed in half in 2020. It might even be earlier. For Bitcoin Cash it would certainly be sometime next year, although we haven’t done the calculations.
Then the reward will be halved again, although they will continue to receive a small amount for a century. But within a decade they will have to rely solely on fees and if they’ve done a terrible job at making their currency usable, they might get nothing.
For ethereum, inflation will drop to 0.5% a year. That other genius, Buterin, might hopefully make the staking a revolving wheel of sorts so that miners can never hold the ecosystem hostage and make outrageous demands to feed excessive greed.
That brings us to ICOs, which might be a more partial explanation as they apply only to eth. We rule they too are guilty, or some of them, particularly or chiefly EOS.
Around $7 billion was raised by ICOs as a class to date. Many of them fantastic projects, and some are even starting to show results, but they too have led to a centralization of sorts of eth in particular.
The greed of EOS is documented fully, but if it wasn’t “real” ethereans who sent them so much, then the “fake” ones had to buy eth first, thus increasing the price, with EOS then selling plenty, thus lowering the price. The two so cancelling each other.
If it was “real” ethereans, then they should learn their lesson and recall eth itself raised only around $20 million if memory is correct. No one needs a billion, unless they’re giving rights of ownership and voting rights and so on.
Quick everyone forgot the lesson of the DAO. There must be a cap! No if, and no but. A cap of preferably no more than $20 million. Had the mega ICOs abided by it, as the early ones did, we’d have no Clayton barking around.
Bringing us to regulators. There are some who think the government is against us. Why, we have no clue. Banks bankrupted countries, including theirs, including the $21 trillion in debt USA.
Even for bankers, we think only the old bankers might have a knee jerk reaction because they’ve always done things one way and can’t see how it can be done any other way. They’re too old to go back to school now.
But the young bankers we think love this space, or ought to if they have any intelligence because many of the inventions in this space make banking far better and a lot more equitable.
So, the only regulator we find guilty is China. We’ll see how that experiment of effectively banning cryptos works out in that ancient land, but this can be good for bitcoin.
Because we might eventually get miners with a bit of intelligence and care to look at how they can grow the ecosystem rather than just their fat pockets.
We have the SEC on balance because they have shown no insight, responding with a very knee-jerk reaction to the community’s backlash against mega ICOs last year.
Jay Clayton, the banker’s lawyer, could have been a lot smarter and instead of repeating like a broken tape that all ICOs are securities, he could have said you need a cap for exemption, or if it’s under one million dollars it’s fine, or whatever more practical and reasonable approach than closing the gates and letting in only the very rich, as well as his buddies the bankers.
Of course, fraud is fraud, a scam is a scam, but a genuine choice is a genuine choice. There, we could talk about looking at substance and not technology.
That said, SEC’s hands were tied. There were calls for the industry to self-regulate, they failed to do so. We were all trying to figure out what the guidelines are, but then greedy mega ICOs went on asking for hundreds of millions as if they’re laying out trans-atlantic cables. So SEC probably thought, well we have the guidelines, here, use these century old ones that protect you by shutting the doors.
In conclusion, and focusing just on the SEC, we’d like to think they are doing what they think is right. It is afterall our fathers, our brothers, our sisters and our mothers that work in that bureaucratic hall.
So we find them not guilty, but with stern criticism for lacking nuance and for failing to work with this space. But we think the political arm of America’s civil service might perhaps get those law-makers to add nuance, such as far lower requirements for ICOs up to $20 million, and perhaps none for up to $1 or $5 million except for obviously fraud is fraud and a scam is a scam. That’s settled.
If we take regulators as a whole we find them not guilty. Plenty of them deserve praise, some have even amazed us and quite surprised us. So we welcome any of them who tries to work with this space, take a nuanced approach, and aims to let innovation boom. For afterall it is such innovation that drives the economy forward.
As such, considering the very positive approach taken by the vast majority of regulators, any influence they might have had on price you’d think would have been positive. Including the SEC, which stands for strong criticism but ICOs were not listening to us constantly criticizing them for not publishing revenue numbers or whatever.
The SEC will swing we hope and think and if they don’t other regulators from Paris to London to Zug to Tokyo are already very keen to lay down reasonable regulations or guidelines, not some century old bible.
Thus, we do think miners are primarily to blame for the steep fall in price and for stupendously high volatility in general.
If that is indeed the case then perhaps something should be done about it. Including just waiting it out until the halvings, or somehow speeding up eths PoS, or just putting public pressure on them to pay as much as they can in crypto, rather than insta converting to fiat.