Stocks

Bitcoin Fails To Hold $9000: May Be Heading The Dot-Com Way

Bitcoin
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When Bitcoin crawled up to $9,000 a few days ago, many were optimistic that the northbound journey would continue for the crypto and carry other altcoins also along on a healthy trajectory. But, while the crypto markets managed to brush side some of the developments like the ad ban from most of the social media companies, the markets wilted under pressure of continuous flow of negative news. On Thursday, amidst reports that the Japanese regulators were enhancing their scrutiny of cryptocurrencies bitcoin fell below $9,000 and is trading at about $8,400 in the early hours of Friday, the 23rd March, 2018. Earlier during the month bitcoin had moved to $11,660 but, from then on, the crypto has been struggling around the $9,000 mark with significant resistance seen at that level.

Japanese regulators

Meantime, it was also reported that Japan’s FSA (Financial Services Agency) was planning to warn Binance, the crypto exchange based out of Hong Kong for operating in Japan without obtaining a registration according to a report on Thursday by Reuters which cited a source that was familiar with the subject.  The source further told newswire that if the warning was not heeded by Binance, the agency would lodge a criminal complaint.  The news was however first reported by Nikkei.

On the other side, Changpeng Zhao, the CEO at Binance tweeted to say that Binance is among the largest crypto exchanges around the globe and that it was in constructive dialogue with the FSA in Japan and that no mandates have been received yet. He accused Nikkei of irresponsible journalism and added that FSA telling a newspaper before telling Binance itself did not make sense.

Japanese National Police concerned

In another report by Japan’s local media also stated that the National Police Agency in Japan has, in the last year, found 149 cases of cryptocurrency hacks resulting in a loss $6.3 million (662.4 m yen) which primarily involved Ripple.  However, the agency did not respond immediately to a request from CNBC for comment outside the business hours in Japan. On Monday last, the FSA in Japan also said that it had held a “Blockchain Roundtable” on 8th and 9th March with policymakers and regulators from countries like Canada and Singapore. The agenda for this meeting behind closed doors included discussions on issues related to vulnerability of public blockchains and co-ordination between academia and regulators.

Bitcoin unfolding similar to the dot-com crash, but 15 times faster

In a related CNBC report  Bitcoin is said to be unfolding similar to the dot-com crash, but 15 times faster. The report adds that there are many similarities between the behaviors of NASDAQ, some 20 years ago when the dot-cum bubble burst, and bitcoin, and that the timeline is unfolding significantly faster going by a Morgan Stanley report published this Monday. In a note to its clients Morgan Stanley noted that in 2000  Nasdaq and today the bitcoin both moved up by 250-280% during most ‘exuberant’ periods ahead of the bear markets adding that the bitcoin rally was faster by 15 times. The report stated further that the price movement and similar trading behavior and volumes could be indicative of history repeating itself.

The report states further that:

  • Ever since digital currency was created in 2009, bear markets are not new and in fact has been through 4 of them with prices dropping between 28 and 92%. Between December 2017 and February, 2018 Bitcoin price has dropped by roughly 70% from the peak of $20,000 achieved in December to $7,000 in February, going by CoinDesk data.
  • In each bearish wave, bitcoin prices dropped by 45 to 50% and it was similar to the behavior of NASDAQ some 18 years back.
  • From 2000 Nasdaq experienced 5 price declines and surprisingly, they averaged a similar 44%
  • Another red-flag could be trading volumes. Trading volumes for bitcoin jumped by about 300% since December and each rally ahead of a bear market saw the volumes falling.
  • The follow-up rally in the case of NASDAQ and bitcoin always experienced falling volumes in trade. The report adds further that rising volumes in trade do not point to enhance investor activity and conversely represents a rush to exit.
  • The report also points out changes seen in bitcoin trading not co-related to the trends on NASDAQ but could potentially be a development that can be interesting.
  • Historically, 3 major currencies have been used in buying bitcoin. The US dollar, Japanese Yen and Chinese Yuan are these currencies. In the most latent bear market, tether, a new cryptocurrency grabbed a larger share of all bitcoin trading.
  • Tether is an altcoin that is worth $1 according to its creators and therefore has the potential to be theoretically more stable compared to other digital currencies experiencing significant price swings.
  • USDT, the tether coin does not constitute a major funding unit but an interesting development is its increased use. The report adds that over the next few years, the market might focus increasingly to cross trades between tokens/cryptocurrencies and be transacted via the distributed ledgers alone and not the banking channels.
  • In January last, a Bloomberg report stated that the US CFTC issued subpoenas to Tether. The company has now under scrutiny, since some people are skeptical if it actually holds $2.2 billion in reserve.