Investors in both traditional assets and cryptocurrencies have been rocked by huge amounts of volatility so far in 2018. The stock market experienced the largest single-day point drop in history, and bonds have been under pressure as concerns grow about rising interest rates. The most notable price action, however, occurred in the crypto markets as an unprecedented wave of interest overwhelmed this unregulated industry.
Astronomical gains incurred throughout 2017 created a kind of craze that spread throughout the media and the general public. Outlets like CNBC and Bloomberg were suddenly covering Bitcoin daily and even ran ‘educational’ segments on how to buy and sell Ripple. The timing of their pump was comical and ended up encouraging buyers in at the top without offering any information on fundamentals.
As Bitcoin was trying to establish itself as a household name, the price plummeted from nearly $20,000 to under $6,500, severely punishing enthusiastic bandwagon investors. Veterans of the cryptocurrency space, on the other hand, viewed this drop as an opportunity and were glad to see the weak hands fold. Previous cycles of growth in cryptocurrencies have shown that price volatility doesn’t necessarily reflect the long-term potential or value of a technology. The uneducated optimism that drove the industry market cap to over $800 billion was based largely on speculation. Staying objective and doing proper due diligence needs to be taken seriously when putting money into any asset. These short-term losses are painful but will only strengthen the overall market as newcomers realize the importance of understanding the technology behind projects before getting involved.
Ponzi scheme-style scams had infected the blockchain ecosystem and desperately needed to be cleared before the next phase of mainstream adoption could get underway. Companies like Bitconnect, Onecoin, and USI-Tech suckered thousands of naive people into believing their promises of no-risk investments and guaranteed payouts. These trojan horse companies laid in wait to wipe out investor confidence and make it hard to differentiate between multi-level marketing schemes and quality blockchain projects. Luckily, during this last corrective period, all three were exposed as fraudulent and were shut down by regulators.