To understand why Bitcoin, Ethereum and entire crypto market have been slumped significantly in value, we need to back Q4 of 2017 when Bitcoin reaching its all-time peak of $20,000.
The Reasons Behind The Slump of Bitcoin
The Decrease in Buying Demand due to The Launch of Numerous ICOs.
At that time, a huge portion of investors did not tend to own Bitcoin or Ethereum to trade or hold, but to exchange these coins to a variety of Initial Coin Offering (ICO) tokens as a profitable investment. In order to buy these newly issued ICO tokens, they need to buy Bitcoin or Ethereum as a convenient medium of exchanging. For this reason, the investors who have Bitcoin and Ethereum definitely did not want to sell and they just were watching the value of their shares soars. Not to mention at that moment, every did firmly believed in Bitcoin and Ethereum. Hence, the price absolutely witnessed a dramatic increase.
Afterwards, startup firms who already completed their ICOs began to unload their tokens all together from December 2017 to January 2018. Additionally, these startups also need convert their tokens to fiat to cover operation cost and develop their firms. This caused a significant decrease in buying demand for Bitcoin and Ethereum and a sudden bank panic as well, slowing down the pace of development of crypto startups.
The Influence of Goverment Authorities
Another factor contributing to the slow pace of crypto firms is the influence of government regulators since the latter half of 2017. In China, the ban of ICO resulted in the shut down of many exchange in this country. In U.S., the DAO report issued by U.S. Securities and Exchange Commission U.S. indicated that securities laws could be adopted to some token sales depending on the nature of the token itself and the way in which it was offered.
Hence, ICO issuers had to convert their tokens directly to fiat without intermediate means such as BTC and ETH. In other words, there were only sellers and holders and no buyers in the market and the market was starting to tank since then.
The Mutual Relation Between Bitcoin and Alt Coins
The significant decrease in value of Bitcoin led to the fall of entire crypto market as a direct consequence. As can be seen from CoinMarketCap, Bitcoin and Ethereum always follow the same trend, up or down together, followed by other type of cryptocurrency.
In 2018, it became quite obvious that not every funded ICOs were diligenced by real tech experienced angels or VCs. Consequently, these tokens issued by these firms had zero attraction and no one wants to invest into. As mentioned above, the price of every alt coins in the market has a direct connection with the rise and fall of Bitcoin and Ethereum and vice versa. The decline and fall of these trash alt coins also had severe impacts on Bitcoin’s value. Altogether, this makes crypto market down remarkably in value.
Can Bitcoin Make A Come Back?
There is no room for doubt that all of startups who lack of ability will go out of business sooner or later, and only decent and advanced companies can still exist. Today, retail investors, especially from Asia, do not throw money and take risky gamble on any new ICO anymore. Now is the time for the emergence of effective VCs to launch reliable VC funds in order to not only raise volumes of deal flow but also assist portfolio companies in operating and managing investment risks.
The new firms which will be funded in some next years are expected to be much better than that of 2017, possibility leading to a big rebound in value of crypto market.
In short, the weak startups who can not compete will run out of money and go out of business eventually since their tokens are worthless. Although the flushing out of these tokens have made crypto market significantly down in value, this will also lift the market up eventually.