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Daniele Bianchi on the cryptocurrency market bloodbath

Dr Daniele Bianchi, Assistant Professor of Finance at Warwick Business School, discusses the plunge in the price of the 10 biggest cryptocurrencies by market capitalisation.

“Understandably, the plunging of the ten major cryptocurrencies by market capitalization spurred speculation than the “bubble” is about to burst. Part of the market reaction is possibly due to the increasing intervention of authorities and regulators around the world. As a matter of fact, regulatory intervention, coupled with security concerns, certainly represents a major risk for the growth and diffusion prospects of Bitcoin and altcoins.

However, whatever you might think of cryptocurrencies, the picture that emerged looking at the past month valuations is rather interesting and might give some different perspective. The biggest loser is certainly Bitcoin (BTC), which went from $19k to $11k over the last month only. However, although the big drop happened of the last few days, altcoins such as Ethereum (ETH), Ripple (XRP), Cardano (ADA), and Neo (NEO), are still up in their prices with respect to a month ago. In fact, while ETH still gained about 200$ from its initial month price, XRP and NEO have both almost doubled their value in a month. This holds despite factoring the recent drop.

There is one simple lesson here which we should not forget. The cryptocurrency market is still in its infancy. High volatility and even higher uncertainty in growth prospects are the norm. The very niche nature of the cryptocurrency market inevitably makes prices heavily influenced by demand pressure, which in turn is fueled by how much cryptos are perceived as an actual investment and legitimate concerns about safety and frauds. In this respect, from a purely agnostic point of view, large fluctuations in traded volumes and prices should not come too much as a surprise”.

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