The total value of all cryptocurrencies fell below $200 billion last weekend, down 76% from an all-time high of $832 billion in January. It is a dramatic decline for a sector that experienced furious growth in 2017, driven by a surge in speculative interest around bitcoin.
The cryptocurrency market is notoriously volatile and has weathered several boom-and-bust cycles in the nearly 10 years since the pseudonymous Satoshi Nakamoto unveiled bitcoin. Bitcoin is a digital currency that isn’t sponsored by any government or single entity; it runs on a platform known as blockchain, which is a decentralized, immutable ledger of transactions.
Last year’s boom was marked by both mainstream interest in bitcoin and an explosion in the number of alternative cryptocurrencies and digital tokens. These dramatically increased opportunities for speculators and heightened volatility in the nascent market.
The problem is that such speculation wasn’t matched by concrete activity. More people may have heard of bitcoin than a year ago, but even the ones who hold it still don’t have much to do with it besides trade.
The selloff in recent months largely reflects doubts about the practical utility of cryptocurrencies. It is still difficult to use bitcoin and other, more established digital currencies to pay for goods and services, causing some investors to question their potential to transform commerce.
“This happens in all major technology development cycles,” said Arianna Simpson, a managing director at venture firm Autonomous Partners. “You see a decoupling between the financial capital and where the technology actually is.”
Bitcoin has fallen about 68% since its peak on Dec. 17. Yet it is smaller rivals, known as “altcoins,” that have suffered the sharpest declines in recent months.
Ether, the second most-valuable cryptocurrency behind bitcoin, is down 53% since June 30, while XRP, also called ripple, is down 43%. Bitcoin Cash is down 37%, and EOS is down 38%.
Bitcoin, by comparison, has declined just 1.7% over the same period. It hasn’t been a tranquil period, though. Bitcoin is down around 20% from a recent peak in late July.
Many “crypto tourists” who bought bitcoin and other tokens in 2017 when prices were soaring lost faith in the transformative potential of digital currency, said Dan McArdle, co-founder of cryptocurrency research firm Messari.
“We’re just in one of those periods where the hype has died down,” he said.
Take ether, the in-house currency for the Ethereum network. The project took bitcoin’s core concepts and adapted them to a platform built to support apps, similar to Alphabet Inc.’s Android operating system.
The value of ether soared from $8 in January 2017 to $1,400 by January 2018 as investors sought to profit on Ethereum’s potential. Yet there is still little commercial activity two years after its launch.
There are about 900 live “dapps” -- or, decentralized apps -- on the Ethereum network with several hundred more in development, according to data from the website State of the Dapps. But there are only 9,000 daily active users.
That isn’t a lot of activity and helps explain the huge fall in value ether has experienced. At its height, ether was worth $133 billion. Today it is worth around $19 billion.
Regulatory issues also have weighed on the sector of late. The Securities and Exchange Commission continues to reject the idea of a bitcoin-based exchange-traded fund, and the Justice Department is investigating potential market manipulation.
Crypto veterans remain sanguine about the market’s long-term potential, pointing to its short but turbulent history.
After trading as high as $1,1,47 in December 2013, bitcoin fell as much as 85% over the next year. It didn’t surpass that previous high-water mark until the spring of 2017. In 2011, the price fell more than 90%, from about $30 to $2.
A return of 100 times in a year is delightful, said Ms. Simpson, “I enjoy that as much as anyone,” she added. “But it’s not realistic. The people who were coming in to get ‘100x’ are in for a rude awakening.”
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