Is Bitcoin losing its market power?
By Chee Jo-Ey |   |  Income+

By Chee Jo-Ey

BITCOIN is now accepted and being used as a form of payment by many big companies and there will be increased adoption due to the currency being accepted as a form of payment.

However, the top cryptocurrency fell to US$7,456.59 (RM30,912.03) on Oct 24, its lowest since closing at its one-year high of US$12,733.71 on June 26, 2019.

Understandably, investor sentiment on the cryptocurrency market is also low currently although prices inched up to US$9,357.06 on Nov 5.

eToro Asia analyst Sagar Chaudhary says that while the Bitcoin price has definitely seen a substantial volatility the past few weeks, before rallying above USD9,300 on the back of President Xi Jinping’s statement, crypto in general has found itself in a period of consolidation over the past 18 months or so, which has helped mature the industry.

“If we look at each cycle so far, we’ve not only seen higher highs but also higher lows at the end of each cycle,” he notes.

Chaudhary wouldn’t say that Bitcoin is losing its market power, though. Volumes have consistently been the highest in the crypto industry and Bitcoin’s market value makes up almost two-thirds of the entire cryptocurrency market cap, he notes, suggesting that its market power is quite substantial.

The Bitcoin hash rate measures the speed at which a computer completes an operation in a Bitcoin code and is a good indicator of the network’s health.

Since the beginning of the year, the hash rate has almost tripled, showing that the network is stronger than ever.

Mining investment is increasing and the total number of active Bitcoin addresses has increased by over 50% since the beginning of the year.

Reasons for recent drop

Chaudhary elaborates: “While the network remains strong fundamentally, we currently see that prices are range-bound.

“In the second half of the year the momentum has slowed down and that has impacted Bitcoin volumes which continue to stay low.

“At such a time, the liquidity is also thin, which makes the market susceptible to wild price swings and that is what we have seen recently.

“Libra had been a big catalyst for pushing up prices at the beginning of the year but as we’ve seen recently, the Facebook-backed stablecoin has been facing several issues that seem to be impacting the crypto community sentiment as well.”

Another hype at the beginning of the year, according to him, came in the form of institutional investment and trading on the Bitcoin Futures Exchange Bakkt.

However, Chaudhary sees this as a general scenario that is affecting the entire market and not just Bitcoin, “so we cannot really attribute it to just the fact that Bitcoin is fading. It is affecting the entire industry.

““Bitcoin’s fundamentals remain strong and we are seeing more and more mainstream adoption of Bitcoin and other cryptocurrencies.”

Luno general manager of Southeast Asia David Low says,” If we’re referring to Bitcoin versus other cryptocurrencies, it still very much dominates in terms of power vis a vis market cap. Currently, Bitcoin, which has the largest market cap among cryptocurrencies, stands at about RM560 mil.”

According to him, in second place is Ethereum, which has a market cap of RM70 mil. Also, Malaysians as a whole still have very low awareness and exposure to cryptocurrency as an alternative investment class.

“We think that it is still very early days for cryptocurrency, and the adoption of cryptocurrency is still nascent,” says Low.

“While the price has dipped recently, one needs to remember that the price of bitcoin in January 2019 was trading below US$4,000. It rallied to above US$12,000 in June 2019, growing 300% in value.

“With such a bull run, it is only normal to see continued price correction in the market.

“Our advice would always be to take a long-term view on digital assets, similar to other traditional asset classes, of at least three years,” says Low.

Luno, a Bitcoin and cryptocurrency exchange company, facilitates bitcoin storage and transactions such as buying, selling and paying through its bitcoin wallet services.

It also operates exchanges between traditional currencies and bitcoin.

Luno had, on Oct 22, 2019, satisfied all the conditions of the Securities Commission Malaysia and recognised as a market operator or a digital asset exchange (DAX).

Becoming mainstream

Bitcoin is the first blockchain-based cryptocurrency or digital currency which still remains the most popular and valuable even though most people do not use it on a day-to-day basis.

But things may be changing.

“With just over a decade of existence, cryptocurrencies have already built a name for themselves,” Chaudhary says.

“Bitcoin is now being used and accepted as a form of payment by many big companies including AT&T. New Zealand recently ruled that people can receive their salaries denominated in bitcoin.

“So I do believe that cryptocurrencies are not going to disappear and we will gradually see greater adoption,” Chaudhary says.

Institutional interest in cryptocurrency is also at an all-time high around the world.

Even though it is still far from mass adoption, institutional investors contribute significantly larger trading volumes than most retail investors.

Low says, “Despite the recent price dip, which in our view is very normal in the crypto world, we are very bullish about the overall growth of the industry.

“Our view is supported by the fact that in Malaysia, we recently obtained full approval to operate our business as a registered market operator (RMO).

“As the first DAX here, Malaysians can finally buy and invest in cryptocurrencies through a safe and secure platform that is vetted by regulators.

“Hence, we see a surge in demand for cryptocurrencies in Malaysia moving forward.”

Similarly, Low also sees regulators across the world finally putting together a legal framework to regulate cryptocurrency.

This, he feels, will further legitimise cryptocurrency globally and accelerate its adoption by people as a new asset class.

Likewise, Chan Wei Chi, an executive leading business development and marketing at SINEGY, does not believe Bitcoin is losing its market power.

“In terms of developments surrounding Bitcoin, we have seen continued growth in market acceptance and institutional financial offerings centered around Bitcoin,” he points out.

“In terms of transactions, the Bitcoin network hash rate is also much higher than previously. The ecosystem is maturing. We are starting to notice a more strategic approach towards regulating the adoption and use of crypto globally.”

Chan notes that price volatility will still be prevalent on a mid-term basis until widespread trading takes place on regulated platforms.

“Price volatility is a common effect of a rather illiquid asset class (compared to traditional equities and commodities) that is traded on unregulated platforms that could be susceptible to market manipulations.

“The growth of Bitcoin derivatives such as futures on Bakkt and Bitmex will allow for more price stability,” he says.

Founded in 2017 by a team of Malaysians, SINEGY is a DAX operator conditionally approved by the SC.

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