Crypto Carnage August 2018: Why Did More Than 70% of Cryptocurrency Prices Crash?
Cryptocurrency world was shaken a few days ago, 14 August 2018, when out of sudden the prices of cryptocurrency dropped by more than 70%; causing massive losses for investors. The downfall raised concern among netizens, seen by an increasing amount of posts related to the contacts and forums of suicide, self-harm, or depression prevention for the mental health of bitcoin investors after the dramatic market downturn.
Bitcoin, as the most potent cryptocurrency of all, couldn’t escape the carnage as well. Coingecko noted that the price of bitcoin was still normal on Monday night, 13 August 2018 at 23:13:41 GMT+8, touching $6,363.59. A slight decrease was seen at 00:13:40 GMT+8, 14 August 2018, to $6,326.44; before a few significant declines that ended up fatally at 11:01:05 GMT+8 with $5,966.77.
Figure 1: BTC/USD Price Drop 13 August 2018 23:13:41 GMT+8 to 14 August 2018 23:24:19 GMT+8
Data Source: Coingecko
The price crash impacted even worse for altcoins. Reported from Onchainfx, while bitcoin price only plunged 70% from its all-time high, altcoins like ethereum, EOS, bitcoin cash, litecoin, ripple, tron, NEO, and the other cryptocurrency price dropped for more than 70%, with NEM leading the ruination of the top 15 cryptocurrencies (95% down from the all-time high).
Mass sell-offs occurred caused by this chaos with massive trading volumes by ethereum, as blockchain startups funded through ICOs. “Since the crypto market seems to have hit panic mode, we can see in the case of ethereum, investors seem to be increasing liquidations of their ICO holdings, with significant drops in price and increased volumes,” said Matthew Newton, an analyst from eToro, an online trading platform[1].
What Did The Experts Say?
Matthew Newton said that the accident was not a surprise, yet he was still optimistic about the potential. “This shouldn’t come as a huge surprise to anyone who has been paying attention to cryptocurrencies over the last 18 months. Any forward-looking financial institution needs to understand this technology and accept its enormous potential[2].”
Another popular comment came from Ted Rogers, the President of Xapo, a bitcoin wallet and vault company based in Hong Kong. He predicted that this might lead more than 90% crypto assets to an extinction. “We could be in the midst of the extinction-level event for “crypto assets” that many maximalists have predicted. 90%+ of @CoinMarketCap list will disappear eventually — might as well happen now,” Rogers wrote on Twitter. “Meantime, lower BTC price means incredible opportunity to buy more #bitcoin[3].”
What Caused The Dipping Market?
Many speculations came out on what or who was responsible for crypto carnage on August 2018; nevertheless, it’s still uncertain what happened. The experts concluded that there were some factors that possibly caused the crash[4].
1. Facebook and Google Banned All Cryptocurrency Related Ads
On January 2018, Facebook updated their policy to ban ads for cryptocurrency and related content, followed by Google on June 2018. Google blocked the ads on their search engine as well as ad destinations that aggregate or compare issuers of cryptocurrencies or related products in its network, including initial coin offerings, cryptocurrency exchanges, cryptocurrency wallets, cryptocurrency trading advice, etc. There’s no further information of why Facebook and Google applied the new policy, yet it was written that their policies ‘are designed to give users information to weigh the costs associated with financial products and services, and to protect users from harmful or deceitful practices.’
2. The Bankruptcy of Mt. Gox, A Cryptocurrency Exchange
Even though Mt. Gox filed a form of bankruptcy protection 4 years ago, yet the cryptocurrency world was still profoundly affected by it. This infamous case that led anger and confusion among the cryptocurrency enthusiasts is still ongoing, with the last update of a vast sell-off by the trustee of the doomed exchange, Nobuaki Kobayashi, surfaced around a week ago. Nobuaki Kobayashi was responsible for driving the bitcoin price below $6,000 with his massive panic sell-off.
3. Uncompromising Regulation
Japan decided to tighten the regulation on cryptocurrency exchanges after the $500 million Coincheck hack. It demanded 6 exchanges to make further improvements while ordering Coincheck. Also, banks made it harder for customers to purchase cryptocurrencies using their plastic cards. A few days ago, HDFC Bank from India banned its customers from using the bank-issued credit and debit cards for cryptocurrency purchases.
Has the Crypto Carnage Ended?
According to Onchainfx, the prices for top 15 cryptocurrencies have got better. Bitcoin price has improved to 68% from the all-time high, while ethereum also increased to 79%.
Figure 2: % Price Down from All-Time High, 14 August 2018 vs 19 August 2018.
Data Source: Onchainfx
Few hours after the mass sell-offs, bitcoin became more powerful over the other cryptocurrencies with almost 55% of total market capitalization. At the time of writing, the dominance of bitcoin over cryptocurrencies has weakened to 51.65%.
Figure 3: Percentage of Total Market Capitalization (Dominance), 14 August 2018 vs 19 August 2018.
Data Source: Coinmarketcap
Based on the graphs above, the prices and total market capitalization have started to get normal. Even though some experts prognosticate that another crash may happen again in the future and the prices will continue to fluctuate, but the public is still very optimistic about the future of cryptocurrency. Sentiment Viz shows that most Twitter users are still confident about cryptocurrency.
Figure 4: Sentiment Visualization of ‘Crypto Crash’ keyword.
Data Source: Sentiment Viz.
Despite the chaos that crypto crash caused, cryptocurrency still holds great potential and is predicted as the future of the global financial system. The ups and downs of the price cannot be circumvented as part of the process. Thus, it’s way too early to conclude whether cryptocurrency is a failure or success.
[1] Cuthbertson, A. 2018. Cryptocurrency Markets Hit ‘Panic Mide’ as Bitcoin and Ethereum See Huge Price Crash. [https://www.independent.co.uk/life-style/gadgets-and-tech/news/cryptocurrency-market-bitcoin-ethereum-price-crash-a8491001.html]. Accessed August 19, 2018.
[2] Carey, J. 2018. Bitcoin BOOST: Wall Street TITAN Goldman Sachs gives ‘BACKING’ to cryptocurrency. [https://www.express.co.uk/finance/city/959264/Bitcoin-price-braced-for-huge-spike-major-bank-decision-good-news-for-investors-BTC-USD]. Accessed August 19, 2018.
[3] Wilmoth, J. 2018. 90% of Cryptocurrency Market Facing ‘Extinction-Level Event’: Xapo President. [https://www.ccn.com/90-of-cryptocurrency-market-facing-extinction-level-event-xapo-president/]. Accessed August 19, 2018.
[4] Shome, A. 2018. Cryptocurrency Turmoil: Who is Responsible for the Crash? [https://www.financemagnates.com/cryptocurrency/news/cryptocurrencynewscryptocurrency-turmoil-responsible-crash/]. Accessed August 19, 2018.
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