On June 15, three well known cryptocurrencies — Bitcoin, Ethereum and Ripple — fell nearly 13-17% in one day of trading, while some smaller altcoins faced even higher drops in valuation. The overall decline in market cap of these cryptocurrencies combined is estimated to be around $16 billion. This came as a surprise to many as it occurred a few days after Bitcoin had achieved an all-time high of $3,000. What powered the incredible crash on June 15? What effect will it have on the future of cryptocurrencies? Continue reading as I explore the answers to these questions.
On a pessimistic note, the crash is a revelation of cryptocurrency volatility and the high risks associated with trading. Many have taken it as a sign that these currencies are untrustworthy, and for now fiat currencies are irreplaceable. MarketWatch commented “Stay away from Bitcoin — it’s complete garbage”. These views have certainly had a negative impact on Bitcoin’s image as a future currency replacement.
How the crash has helped cryptocurrencies attain sustainable levels
Bitcoin’s price of $3,000 was considered unsustainable by many. Yes, Bitcoin couldn’t last too long at those prices, and the fall could have been much more catastrophic. The truth is that Bitcoin’s fall to $2300 indicates a movement towards sustainability, rather than a highly pleasing but highly inflated price. Andreas Antonopoulos, a Bitcoin expert, believes that the crash was more accurately a ‘market correction’ or a currencies method to return to its actual valuation, not bloated prices. The sprouting of 100s of ICOs (Initial Coin Offerings) and an increased hype had simply increased the risk of a Bitcoin bubble, where the coin could have lost almost all its value in no time.
Figure 1: Graph summing up why the crash was necessary
The chart shows how Bitcoin’s past growth