The anticipated cryptocurrency correction within the digital currency market seems to have finally arrived.
On Monday 26 June, the digital currency market, which has been led by bitcoin and ethereum, saw prices take a dive across the board. Whether it was small or large currencies, a significant majority of them were in the red, which was spurred by some profit taking.
As a result, the total digital currency market cap value has dropped $100 billion and is now worth just over $96 billion, according to CoinMarketCap.
The biggest drop was seen with ethereum, which was down by nearly 20 percent at $246; however, as of Tuesday 27 June, its price has recovered slightly to $256. Meanwhile, bitcoin was down by 7 percent, at $2,424. Yet, it wasn’t just the two leading digital currencies that had suffered a drop it price.
Thirty-seven of the top 40 cryptocurrencies were also in the red, including popular coins such as ripple and litecoin.
The drop in prices comes after a successful runup in the digital currency market throughout the first half of 2017.
Bitcoin’s value has tripled since the beginning of the year when it was valued at $1,000. It finally reached the $3,000 mark on the 11 June. Yet, ethereum has managed to rise by 4,000 percent this year, at its peak, after its value jumped from $8 in January to $400 in June.
Of course, with these massive gains across the board, major players in the field have been expecting a pullback of some description to take place.
Fred Wilson, digital currency investor and Union Square Ventures partner, wrote in a blog post that:
“My gut says we are headed for a selloff in the crypto sector.”
Wilson adds that while he doesn’t try to predict where the market is going, he believes that in five or 10 years, the space will be a lot more valuable than it is now.
It’s believed, though, that the recent crash in the digital currency market was due to a multimillion dollar sell order of ethereum that took place on Coinbase’s GDAX exchange.
This image from Twitter indicates as much.
However, while a price correction appears to be underway, some traders think that traders are now showing an appreciation for profit taking. Another factor to consider is that markets tend to move the same way together when it comes to price movements. When one digital currency goes down in price, so too do others. The same can be said when its price increases.
Tim Enneking, investor and crypto hedge fund manager, said:
“We are witnessing the still strong correlation between bitcoin and other cryptocurrencies. When bitcoin sees a large move down, as we’ve seen in the past 48 hours, it still has a tendency to take the entire rest of the market with it.”
Ethereum Experiences a Backlog
Meanwhile, an influx of new investors to ethereum is slowing the network down.
Earlier this week, it was reported that media interest and a new wave of projects raising funds through initial coin offerings (ICOs) via the ethereum blockchain, meant that there were transaction backlogs on its network.
A report from CoinDesk indicated that on the 20 June, there were as many as 300,000 transactions stuck on the blockchain, which is the highest figure seen on the two-year-old blockchain. News of this will, no doubt, be worrying to the community as raising questions as to its scaling ability.
At the moment bitcoin is undergoing a similar issue as the space searches for a solution that can solve its scaling issues. At present, there are just over 15,000 unconfirmed bitcoin transactions waiting to be included on the blockchain. This is a considerably lower figure compared to the more than 220,000, which was reported on the 19 May.
However, after many years of discussing the various solutions there may be a light at the end of the tunnel for bitcoin.
Two solutions have been proposed: SegWit2x and BIP148, which are due to go into effect on 21 July and 1 August. While it was initially thought that these solutions wouldn’t be able to work together, which could potentially cause the coin to split and reduce its value, a way has been developed that would make the two systems compatible.
Yet, the community is still not out of the woods. Miners still need to agree on a solution when the time comes; however, if and when an agreement is reached it could help to push the value of bitcoin back up from its June lows.
No Need to Panic…Yet
Of course, even though the digital currency market is in the red at the moment that doesn’t mean it’s the end of the sector where prices revert back to lows the community hasn’t seen since last year.
Surely, it’s a far more healthy approach if the market gains new price highs over a steady period as opposed to continuously attaining new highs to then plummet to drastic lows in quick succession?
Every time bitcoin has reached a new high it has also dropped in price again to resettle before climbing again. This has been seen during the first six months of 2017. As more people invest in the space, it will be natural for these fluctuations to continue. The market is highly volatile and it’s unlikely to stop being so any time soon.
Of course, unless one has a crystal ball, knowing how long the drop in prices will continue is not known. But as Wilson says, it’s better to invest a little at a time rather than all at once.
For an investor who has been trading in bitcoin since 2013 and ethereum since last year, he adds:
“Having 10-20 percent of your net worth in crypto might make sense. But not 100 percent. The category is too volatile and you could lose a lot if you aren’t careful.”
June is certainly proving to be an interesting month for digital currencies across the board. All that remains to be seen is how much more the sector will change as we look toward the second half of the year. Will we see new price heights or could the price of the market come crashing down?
Featured image from Flickr via Kalina.