Reflections on cryptocurrencies as Bitcoin turns 10
Ten years ago, the world was still going through the worst financial crisis since the Great Depression. The mighty Lehman Brothers had just collapsed, Bear Stearns was purchased for a pittance and corporate juggernauts like AIG, General Motors, and General Electric were all in trouble. The unemployment rate was rising fast. At the same time, Satoshi Nakamoto was finalizing his white paper on Bitcoin. This week, the cryptocurrency that started it all is turning ten years.
The rise of Bitcoin was fueled by the lack of confidence in official government regulators who had ‘allowed’ the financial crash to happen. At the same time, dark web marketplaces such as Silk Road were rising in prominence. A key problem for these marketplaces, however, was that the money-transfer methods back then were not anonymous and transactions were not encrypted. Bitcoin, the digital currency that allowed anonymous shopping was a blessing for these marketplaces where everything illegal was being sold.
As the popularity of Bitcoin grew, so did its price. In the next decade, the price gained from below $1 to a high of almost $20,000. It also led to the creation of thousands of copycat cryptocurrencies that had a market cap of almost a trillion. The cryptocurrency became an asset class in itself.
A key factor in the cryptocurrency industry is that they have not been widely accepted. Today, no major retailer accepts cryptocurrencies as a means of exchange. This is because traders are concerned about the volatility of the currencies and their security. Initially, a number of companies such as Microsoft did accept the currencies.
Today, the industry is at a crossroad. While a number of earlier backers are still bullish, the overall sentiment in the market has fallen. This has seen demand decrease, which has in turn led to a sharper decline. For example, Bitcoin is currently trading at $3785, which is more than 70% lower than its peak. The same is true among other cryptocurrencies such as Ethereum, which is trading at $151. On the hourly chart, the ETH price is above the 50-day and 25-day EMA while the RSI has moved almost to the 80 level. This upward trend could continue in the coming days although there is a likelihood that it could also come down.