Investors know there are risks involved with cryptocurrencies. Still, the second quarter was particularly volatile.
Case in point: In early March bitcoin () was trading for more than $11,450, according to ThirtyK data provided by . Less than a month later it was down as low as $6,472, off about 43 percent of its value. A turnaround in the second half of April and early May lifted bitcoin to about $9,900. Alas, last week the cryptocurrency slid again, finishing at around $7,690.
As a result, this past weekend brought a tsunami of selling, causing both bitcoin and ether () to dip 12 percent. Almost all of the other 100 largest cryptocurrencies suffered double-digit percentage losses, too, erasing tens of billions of dollars from their market cap.
“It’s understandable that the big runup in cryptocurrencies in 2017 might not be sustainable in the absence of any material change in actual real-world usage of the thousand-plus currencies released by various projects,” says Hendricks.
The pullback forced , and its market cap dropped to less than $50 billion on Tuesday.
“No one has any idea why the price of major and minor coins all dropped so much recently, but there is a rumor of a major Asian bitcoin holder moving almost 100,000 bitcoin onto an exchange,” Dave Hendricks, the founder and CEO of , tells ThirtyK. “That news may have spooked more people, whether or not they were actually even sold.”
“It’s understandable that the big runup in cryptocurrencies in 2017 might not be sustainable in the absence of any material change in actual real-world usage of the thousand-plus currencies released by various projects,” adds Hendricks, whose company operates a security-token-issuing platform specializing in “programmable securities” tied to real-world assets.
Enter Institutional Capital
William Hadala, co-founder and chief strategy officer at , a Houston-based blockchain technology company, tells ThirtyK that what has stood out in the crypto space over the last six months is the increased level of institutional capital entering the market.
“We are moving into a period of time similar to 1993 when the Internet started to become mainstream and accepted as a disruptive technology that would transform the entire world, regardless of people accepting this fact or not,” Hadala says. “During that period of time, the internet transformed and grew exponentially as institutional capital entered the market.”
The same transformation is taking place today in the crypto industry, he adds.
“In order to support a global economy using digital currency and global blockchain applications, blockchain infrastructure must be upgraded to [being] institutional grade, similar to the systems powering our global financial systems,” Hadala says. “Never in a million years would banks and credit card companies run their own systems on the current blockchain infrastructure.”
Exactly how all that investment influences cryptocurrency prices and ICOs remains to be seen. One thing is likely, however: Volatility isn’t going away anytime soon.