05 Feb Bitcoin’s Correction Could Well Have Shaken Out Potentially Damaging Investors
It is the people in a market that can make it crash, so perhaps this is what Bitcoin needed
There have been a number of times in Bitcoin’s history where people have thought that mainstream adoption had happened. However, the lead up to last December’s $20,000 high saw Bitcoin hit some really big adoption milestones.
Through the memes and reports on mainstream news, Bitcoin was the word on everyone's lips, and it was even near the summit of Google searches. This saw a new breed of investor entering the crypto community, but a dangerous one.
The hype surrounding Bitcoin was all aimed at the incredible growth that the digital currency had experienced since it began less than 10 years ago. People were unable to keep away from the chance to double, triple, and so on, their money in a matter of weeks, rather than years as would be the case in normal investments.
Everyone from pensioner to teenagers were joining the Bitcoin craze with the hopes of making some money off their investment. The actual technology, or even the way it worked, was hardly a priority. These dangerous views of Bitcoin were now propping up a value in the coin that was probably far too high, as it smashed through the thousand dollar barriers with ease through November and December.
A sobering correction
Bitcoin, having been founded by, and upon, people who believed in the technology, and the potential to be a disruptive force to challenge the banking industry, was now teetering on a pile of uneducated speculators. People who were new to the scene were used to only upward trends and huge returns yet they were not ready for the crash.
As the crash began and is still going on, slicing off more than half the value of Bitcoin, these same speculators have been flushed out of the system. The sell off from such investors has played a big part in the fall of Bitcoin price, but it has shaken out more than just the so-called weak hands.
It may sting at the moment, for anyone who has decided to hang out despite being at a loss, but those who remain probably have more than a passing interest in the technology. The loss of the mass speculators could be just what Bitcoin needs.
Last year people were buying up Bitcoin even with their credit cards and other forms of debt. While this is easily seen as a bad idea, for the person doing it, it is also a danger for Bitcoin. There have been many financial crashes and bubbles in markets that have begun with people getting foolish in their buying and investing. This FOMO buying and hype have all the hallmarks of a bubble.
Angela Walch, a law professor at St. Mary's University in Texas who studies cryptocurrency and financial stability, spoke to Vice about the speculative nature of Bitcoin and its potential to turn into a bubble if silly decisions keep flourishing. Some of the factors to consider when trying to find a potential bubble are already evident according to Walch:
“Some of the hallmarks to me involve the FOMO idea—the fear of missing out and never being able to get in. People see other people making a lot of money and they just want in on it. The housing bubble is a good example of that. People thought another person would always want to buy their house from them at a higher price.”
A safer space
If this latest correction has indeed gotten rid of these types of investors, who are now running scared and stung from a falling Bitcoin price, then all the better.
The long-term prospects for Bitcoin are better off, even if the price is lower, without such investors. Again, this harks back to the dotcom bubble where the hype around such companies caused it to pop. But once that bubble had popped, the ecosystem grew back bigger and better, as there is no saying that the Internet and dotcom space are dead in 2018.