This week, cryptocurrencies are falling after a series of negative news. Bitcoin, the largest currency fell below $6,000 while ethereum and ripple fell below $600 and $0.60 respectively.
The downward movements of the cryptocurrencies started in December when bitcoin hit the price of almost $20,000. After that, negative news from South Korea, China, and the United States, coupled with negative statements from credible sources pulled the currencies lower.
Already, more than $550 billion in value in cryptocurrencies has been wiped out and some experts expect the currencies to fall even lower.
Apart from the regulatory and expert views, the participants in the cryptocurrencies market have complicated themselves. For example, bitcoin was established to create a less expensive, faster, and a decentralized form of currency. Recently, the cost of conducting transactions with bitcoin has skyrocketed, the process has slowed, and there have been calls to regulate the industry.
In addition, retailers who used to accept bitcoin like Microsoft have opted out while the participants in the dark web where bitcoin thrived have identified better options like Monero and ZCash.
People are beginning to draw comparisons between cryptocurrencies and other previous bubbles. For example, during the tulip mania in Netherlands centuries ago, people borrowed money and bought tulips on hopes of cashing in. The upward movements in price attracted more people to invest in tulips.
With cryptocurrencies, research shows that most people who own them do so to reap the benefits of a higher price.
This week, the price of cryptocurrencies could continue to go down as more people rush to exit their positions. Remember, cryptocurrencies are different from stocks in that they neither pay dividends nor have earnings which makes valuing them extremely difficult.
In addition, yesterday, a Chinese financial publication called Financial News wrote that the Chinese Central Bank would move to ban all forms of cryptocurrency platforms and ICOs.
In India, the finance minister reported that the country would also ban all forms of cryptocurrencies in his bid to tame cybercrime. To most traders, India was the perfect country to replace China on cryptocurrencies because of its young and vibrant population and the low cost of energy.
As if that is not enough, major banks in the United Kingdom and United States have announced measures to ban people from using their platforms to buy cryptocurrencies. This is a major blow because, bank transfer is a major method used to buy cryptocurrencies.
Further, payment-processing companies like Visa and Mastercard announced new fees and charges for all cryptocurrencies related trading. In total, customers will need to pay a 10% fee per transaction.
On Tuesday, renowned economist who predicted the financial crash, Nouriel Roubini predicted that the price of bitcoin would fall to zero. Roubini is currently a university professor and the chairperson of Roubini Economics, which provides economic research to global clients.
Historically, it has been very difficult to predict the short and long-term price of cryptocurrencies. However, in the past sell-offs, it was easy to identify a silver lining during the fall and remain optimistic. This is different today and I expect the prices to remain subdued throughout the week.