Is The Crypto Game Over?

Cryptos, and particularly Bitcoin, have had a tough ride of late. The fundamentals have been lining up against them, however is what we have seen recently all part of a bigger picture?

In January of 2021 The UK’s financial authority made this announcement:

"The FCA is aware that some firms are offering investments in cryptoassets, or lending or investments linked to cryptoassets, that promise high returns. Investing in cryptoassets, or investments and lending linked to them, generally involves taking very high risks with investors’ money. If consumers invest in these types of product, they should be prepared to lose all their money."

Barclays, Santander, HSBC, and Natwest, to name but a few, have made life difficult for crypto trading since the beginning of the year and just three weeks’ ago the FCA (Britain’s Financial Conduct Authority) has stated that Binance, one of the world’s largest cryptocurrency exchanges, is not permitted to undertake any regulated activity in the UK.

Janet Yellen has also made it clear that the US will clamp down on cryptos as it is widely believed it is used as a front for tax fraud and money laundering.

The West is not alone. China and India have clamped down heavily as well. Elon Musk has done a full 360 from promoting it, to then dropping it due to its high non-environmentally-friendly footprint.

Other big names have also followed suit in condemning the carbon footprint caused by mining. As a consequence, in the last two months the price of Bitcoin has more than halved when looking at today’s value of just over $30,000. So is this a commensurate reaction to all of the above, or merely just a brutal correction in a sector gone mad?

Cryptos are extremely volatile after all, so this huge drop in price shouldn’t come as a surprise to anyone, nay actually expected.

The way we see it, is while cryptos have several positives, no one can doubt the technology has been ground breaking and the limited supply also paints an attractive picture. However, the major issues appear to outweigh the benefits. We outline what we believe these to be as follows:

Cryptos in the major countries are not subject to regulation in the same way the stock market is. This leaves them open to scammers and fraud with your money being at risk. Criminals have been able to hack wallets and steal coins without trace, and still do to this day.

The lack of footprint left by a lot of this fraud means anyone that enters crypto trading does so at a much higher risk than regulated markets. One would have to ponder what would happen to the price of cryptos should regulation come in to play overnight. I would suspect the price would head south.

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There are many that believe that Bitcoin is a frontrunner to Central Bank Digital Currencies which are currently in their test phase in China, with the US and UK likely to make a bold statement on their intentions in the coming months.

It is highly likely China has made a stand on Crypto to allow more focus on their own digital currency. China has stated the aim of their central bank is for “controllable anonymity;” cryptos have “untraceable anonymity.” If the masses start believing in digital currencies, then what will be left for cryptos?

When something new appears, there is a certain excitement that goes with it. Cryptos have had a good run now and hitting parabolic runs to above $60,000 to where we are now would appear the fun for them has ended. Retail investors have had a certain amount of a glorious introduction to trading cryptos, up until two months ago when it peaked.

The COVID crash brought about an awful lot of new traders to the market who have only ever seen prices go up to levels that would normally take years. Think of all the retail investors who have lost money on cryptos in the last two months. Do they still believe it is going to $10m because someone on YouTube said it will? Sadly that is the illusion that leads to retail traders dipping into certain markets and the professionals eat them alive.

Reddit has a new crowd with a mass following that pumps and dumps certain stocks. This seems to be the new craze, so has boredom kicked in with cryptos? Barring Dogecoin’s monumental introduction, is the crypto craze now coming to an end? Is it old news? Are retail traders five years’ late? Taxi drivers have been talking about Bitcoin, and although a cliché, it is often the time to get out.

Bitcoin’s current price level is at a serious inflection point. If $30,000 holds, there is a chance of a rebound, if it doesn’t it could open up the trap door to very, very low levels. The chart pattern is ugly and is suggesting south is where it is going.

The crypto world is cleaning up its act. Crime loopholes of wallet theft are being closed, and there are more eco friendly versions of mining in the pipeline to offset the huge carbon footprint. Someone buying crypto now must find someone to sell it to in the future at a higher price, and in this extreme downtrend, that doesn’t appear attractive.

The stark warning from the UK at the start of the year perhaps has a certain dark underbelly. Is this a warning that once CBDCs are imposed across the globe, the crypto game is over?

Written By: Andrew Lane