Crypto Speculation Overshadows the Blockchain Benefits

Rising crypto valuations had triggered a massive wave of speculation, acting as a self-reinforcing pattern and driving prices to levels never seen in history. Even though the developments are favorable for those that bought at lower levels, focusing solely on the ticker is not what cryptocurrencies had been created in the first place. BTC buyers were active even as the price reached $40,000 and we should not forget that in 2020, institutional investments in crypto reached a new record.

Everybody is chasing crypto higher

The current market conditions resemble those seen in late 2017 when valuations were breaking new records and everybody was thinking the sky is the limit. It turned out to be the opposite and the market embarked on a bear market, whipping more than 80% of the gains.

Similarly, we see the same thing happening again, and now people believe it is different, mainly because cryptocurrencies are viewed as investing products and protection against the diminishing purchasing power of fiat currencies. But is it healthy for the overall market to have the majority of participants having exposure on the upside?

Distorted market conditions are dangerous

History had thought us that the cryptocurrency markets fluctuate from one extreme to another. It is something usual in a market that has yet to mature. However, we must learn the lesson and understand how dangerous distorted market conditions can be. During the past week, Bitcoin dropped by over 20% within 2 days, showing how fragile the current elevated valuations are.

It only takes one major negative news to trigger buyers to exit their positions. We had a Santa Claus rally at the end of last year, but in the meantime, maybe many of us forgot what’s the purpose of blockchain and crypto in the first place.

What was the initial goal of the blockchain?

Was the blockchain technology created to lead to the appearance of highly speculative instruments that go from boom to bust, in 4-years cycles? We could probably agree that its main goal was to facilitate global decentralization, transparency, and security. As the economy is integrating technology more deeply, blockchain innovations can create new business models and replace some outdated ones.

Right now, even though cryptocurrency valuations are at record levels, blockchain startups are struggling to raise funding or comply with tighter regulatory requirements. Bitcoin becoming a global payment currency continues to be a fantasy, yet it is possible that in the meantime, the benefits of the blockchain can be used for the benefit of everybody.