The cryptocurrency markets have endured significant volatility in recent months. A frenzy of buying activity in Q4 2017 led to a massive surge in demand and prices for these digital assets. Bitcoin (BTC) surged to $20,000 + per unit by December 17, before sharply retreating to its current levels in the $8,000+ range. There are presently 1,514 digital currencies across 8,659 markets. The top 5 digital currencies include Bitcoin, Ethereum, Ripple, Bitcoin Cash, and Cardano. 2018 has been a brutal year for this nascent market. While the market capitalization is significantly higher than at the start of 2017, there are many factors to take into consideration.
Cryptocurrency traders who purchase Bitcoin (BTC), Ethereum (ETH) or Ripple (XRP) are subject to downside risk. Like any other traditional asset which must appreciate over time, cryptocurrency that moves in the opposite direction incurs losses for traders and speculators. However, there are ways to dabble in the cryptocurrency markets without exposing yourself to the negative effects of downside risk. These come in the form of derivatives trading in futures markets.
Olsson Capital trading expert, Montgomery P Wilson believes that traders should hedge against cryptocurrency declines by purchasing put options (going short) on digital currency assets. This is one of the most effective ways to guard against price drops in the buy to own arena. Several months ago, futures markets in cryptocurrency trading opened up with the CME and the CBOE. Allowing corporate speculators to weigh in on price movements of cryptocurrency, fosters institutional involvement with this new asset category.
What News Affect Cryptocurrency Markets?
Many factors impact cryptocurrency markets, notably countries intending to regulate, ban, or limit trading activity in digital currency. Recently, a China clampdown on all cryptocurrency ICOs (initial coin offerings) took place and the country is looking to prosecute foreign-based cryptocurrency trading brokers and platforms offering their services to Chinese residents.
India is equally strict when it comes to digital currency trading. Additionally, countries like South Korea are implementing strict controls on digital currency trading and domestic brokers are no longer allowed to for accept foreign. In the US, there has been little indication that the authorities will ban cryptocurrency trading. However, that could change at a moment’s notice.
Banks Get Scared and Pull Credit Cards from Crypto Transactions.
The basis of all cryptocurrency is the blockchain technology that underpins it. This seamless, anonymous, near-zero cost technology has put banks on notice. Recently, major US, UK and European banks have moved to prevent their credit cards from being used to buy and sell cryptocurrency. Major US banks including Morgan Stanley, Bank of America, and others no longer allow credit cards to be used for cryptocurrency purchases. In the UK, Lloyd’s followed suit, and so did the Royal Bank of Scotland.
Today, Barclays UK (debit card and credit card) and HSBC still allow cryptocurrency purchases with their cards. Whenever industry-wide changes are made to try and stymie cryptocurrency adoption, the price fluctuates wildly. Governments do not control the supply of cryptocurrency, but they can impose restrictions to limit or eliminate its usage.
By requiring digital currency exchanges to comply with IRS regulations, this budding market is falling under the umbrella of increasing government control. It’s tough to call the cryptocurrency market a bear market when the price of Bitcoin is 10 times higher today than it was a year ago. There are significantly better performance figures for all other cryptocurrencies, making this one of the most bullish asset markets to ever hit the scene.
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