Zack Guzman Senior Writer
November 27, 2018
Bitcoin (BTC-USD) retreated once again Monday to kick off a fresh week of losses after the cryptocurrency suffered its biggest weekly decline since January.
Historically, the roughly 80% drop from its December high also now marks the third largest decline in bitcoin’s decade-long existence. Only the 93% collapse in 2011 and the 84% decline from 2013 to 2015 in the wake of the Mt. Gox exchange hacking dwarf the pain crypto investors have suffered this year.
And yet, when you look at all the selling that has brought the world’s largest cryptocurrency, by market cap, to its knees, it’s hard to pinpoint one catalyst that may be able to reverse the trend. According to Travis Kling, chief investment officer at crypto hedge fund Ikigai, between renewed pressure from the Securities and Exchange Commission and concerns stemming from the recent bitcoin cash fork, a “death spiral situation” could spill over into 2019.
What sparked the sell-off?
In the months before a proposed bitcoin cash fork that split the popular cryptocurrency into two distinct networks on November 15, bitcoin had largely bounced around a range of $6,200 to $6,600. Bitcoin quickly plummeted, however, following the battle that ensued between the two bickering factions led by “Bitcoin Jesus” Roger Ver on one side and billionaire investor Craig Wright on the other. Both had hoped to attract miners to their forks of bitcoin cash to establish their newly established currencies as the dominant player.
In the battle, Wright threatened miners deciding which camp to back with the possibility of him having to dump bitcoin — potentially until it hit $1,000 — to sustain his battle over bitcoin cash computing or hash power. He tweeted:
Following Wright’s November 14 tweet, bitcoin fell 10% to $5,469 on a day that saw the highest trading volume in a month. It continued to fall below the key level of $5,000, and then $4,000, in the days that followed. While Wright and others in his camp have since called a truce in the bitcoin cash fork battle, the effects could still linger.
“It’s pretty clear that the hash war fears were what initially cracked the market in terms of breaking down to a new low,” Kling told Yahoo Finance. “The bitcoin cash debacle shined a spotlight on the importance of mining this asset class as a whole and how centralized the mining landscape truly is — that you can have two players on opposite sides of another and they can have such a large impact on price.”
Kling also attributes part of the selloff to the SEC’s decision to crack down on initial coin offerings. On November 16, two days after Wright’s tweet, the agency announced it settled charges against two crypto companies that failed to register ICOs as securities in a move that established new regulatory pressure in the space.
That pressure could result in more selling, Kling posited, if companies that issued prior ICOs also fear that they might be on the hook to pay fines or return money to investors as well.
Bitcoin ETFs may be the catalyst
The larger takeaway from crypto’s latest plunge is that it’s still an asset class that at the moment is controlled by large players, according to Kling.
“It’s the side of crypto that we have to put to bed if you want this thing to take off,” he said, adding that the price swings stemming from the spat seriously weaken any chance that the SEC will approve a much sought-after crypto ETF. The SEC rejected nine bitcoin ETF proposals in August, but bitcoin bulls hope eventual approval will be the spark needed to invite institutional dollars into a space that may have alienated its retail investor base.
The agency has until February 2019 to weigh in on other pending bitcoin ETF proposals from New York-based firms VanEck and SolidX. Until then, investors are eyeing the launch of Bakkt, the crypto exchange from the New York Stock Exchange’s parent company that partnered with Microsoft and Starbucks, as a bellwether of institutional demand.
The project announced last week that it would be delaying its launch, originally planned for December 12, until late January, adding, “the new listing time frame will provide additional time for customer and clearing member on-boarding prior to the start of trading and warehousing of the new contract.”