Bitcoin is finally above 7000, briefly reaching 8000. But many are still sceptical on the price of Bitcoin and in general, the technology. The market is in revival mode now, and historically Bitcoin, after every crash, has reached historic highs, and this has kicked the market’s animal instinct into action which we witnessed recently. Sceptics worry that this rally could end up like the one in 2017 with a huge crash. In a recent interview given to CNN Barry Silbert, the founder and CEO of Digital Currency Group (DCG), an influential venture capital firms in the crypto space, has said that the current rally of Bitcoin is different from 2017.
One the biggest drivers of the 2017 price rise was the huge number of ICOs. The funds raised by them were a key driver, but this fizzled out once people started noticing that many of the projects were basically scams and especially when many of the could not materialise. These scams drew regulators into the field, and the response was harsh. Most countries outright banned ICOs and many restrictions were placed on crypto activities, which dampened the market. Along with ICOs, FOMO (Fear Of Missing Out) was a major contributor to the rally, especially when newspaper articles were filled with stories about people becoming millionaires by investing in crypto within a few years. FOMO has also died out after the crash.
Back in the ICO heydays, crypto was largely experimental, there were only a few places that would accept it. The infrastructure wasn’t robust enough as well, since at some point users had to wait 10 hours to confirm transactions in the Bitcoin network. These issues were resolved by raising the block size, and the introduction of lightning network which has greatly reduced the wait time. Now, things are changing rapidly. Big banks and tech companies are entering the space, and many flagship phones are shipped with in built crypto wallets, along with this many new startups have created products which has made spending crypto as simple as pushing a button.
Even though the established goal of crypto is to overthrow big financial institutions, their entry to the market had some significant impact on it. Since most institutional investors are long term, it reduces price volatility. The capital they hold dwarfs the current market cap of crypto many times and the capital from these investors came at a time when it was most needed by the industry. Many startups were closing down like Ethereum Classic and the infusion of cash into the market greatly helped. Beyond the capital, when institutional investors come into this space it gave a positive outlook to the whole industry, which is more important than just cash.
Investors are more aware of the rewards as well as the potential risk associated with crypto, many of the early investors never even bothered to consider the possibility of the prices going down. While many were making outlandish claims like Mcafee, who predicted Bitcoin prices will reach a million dollars, all this created a market environment where everyone was hyped up, with absolute disregard for the fundamentals. This has greatly changed over the years. But even now it is still hard for even the most seasoned investor in crypto to point out an analogy to cryptocurrency.
Everything seems like roses and cherries which has made most analysts really confident about the market. It seems that Bitcoin is going to reach new heights soon. But the simple fact is that this time around, the investors are more educated and knowledgeable, which could mean that many of them simply wouldn’t be willing to pay astronomical prices overnight. Similarly, knowing the volatile nature of the market, most investors would simply dump their holdings if such a rise was to be experienced, making a quick buck. The recent movement suggests this behaviour when the prices reached 8000+, the prices soon slide to 7300. Bitcoin prices may rise but unlike in 2017, it most likely won’t be a straight shot to $20000.
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