State of the Market – 15 September 2017

What a couple of weeks! After nearly breaching $5,000 on August 31^st, Bitcoin plunged as low as $3,000 today and currently sits at $3,550 on GDAX as I type. So, what the heck is going on here?! If you’re new to Bitcoin, welcome. This is what’s known as volatility. As a truly free market, Bitcoin has some wild swings. For reference, just look below:

Bitcoin Major Corrections

So yea, this has happened before. For those of you who’ve been into Bitcoin for a little bit, you’ve already seen two big dips in 2017. This is why I always suggest to “keep some powder dry”. What I mean is holding some cash on the side to buy a 15% dip and a 35% dip. We’re in it for the long term, and these dips are buying opportunities. We’re not trying to be day traders here, but dollar-cost averaging is an effective tool, both for your wallet and your emotional well-being.

There is (some) legitimacy to this sell-off. The biggest news this week has come out of (surprise!) China. On September 4^th, the People’s Bank of China (PBoC) labeled token sales (ICO’s) “illegal and disruptive to economic and financial stability”.  That’s fair, there are a lot of scammy ICO’s out there that are raising some serious money. There are even a lot of good-natured projects out there that simply have no value proposition for the coins that they are selling. This by itself should not have much of an impact on Bitcoin. If anything, it may help direct more capital into the legitimate, proven blockchain. This does however have a massive impact on NEO, Ethereum, and other currencies that exist mostly to create ICO’s.

So, this news alone didn’t do much to the value of BTC, as it traded around $4,600 for a few days. However, after the ban, rumors began to swirl that China would start to crack down on Chinese exchanges. It was unclear if the Chinese government would halt trading on recent ICO’s, or shut down Chinese-based exchanges in general. So far, BTCC (A Chinese exchange) has said on Twitter that it will halt domestic trading by 30 September.

BTCC Tweet 14 Sept 2017

It should be noted that BTCC was trading its own token, called “ICO Coin” at the time. So far, the most official news out of China points to the (temporary?) banning of all new ICO’s, and the suspension of trading newly issued ICO tokens by Chinese users. It’s doubtful that this ruling will affect Bitcoin in China, but it’s still a bit unclear. I’d expect a few exchanges to close, particularly exchanges with their own ICO’s/token (Binance), and exchanges that profit off of trading IOU’s on newly issued ICO’s. Since the news, Bitcoin trading volume has significantly increased on platforms like LocalBitcoins, where users can anonymously buy Bitcoin using cash.

It’s estimated that around 10-20% of all BTC volume comes from China. Here’s a snapshot of trading volume by currency in the last 30 days.

BTC Trading Volume by Currency (Last 30 Days)

In addition to the news out of China, there were quite a few headline grabbers out of the U.S. as well. Jamie Dimon, Chief Executive of JPMorgan Chase & Co. called Bitcoin “a fraud” that will blow up. Besides the fact that he has a vested interest in seeing Bitcoin fail, since he’s in charge of one of the world’s largest banks and all, the general tone of his comments conveys misunderstanding and arrogance. I don’t want to waste any more time on him here, but his comments are worth checking out. Oh, and side note, J.P. Morgan accepted a $12 Billion bailout in 2008…which is roughly the amount of market cap Bitcoin reclaimed on its bounce back to $3,650 (a 20% gain) since the lows this morning.

Can’t forget, North Korea is also apparently “funding its regime” with Bitcoin mining profits. The smear isn’t going to stop any time soon. Stay true and HODL!