Flashback to 2009 when the Bitcoin was launched by an individual or a group known under the pseudonym “Satoshi Nakamoto”. It was the first cryptocurrency to capture the public imagination. As at May 2018, there were over 17 million bitcoins in circulation with a total market value of $140 billion. Today, the total value of all the world’s Bitcoin currently stands at $110 billion according to CoinMarketcap.com. It seems ‘all of a sudden’, bitcoins and cryptocurrencies began to fall.
On the morning of September 5, the price of bitcoin went into a freefall. According to CoinDesk, it fell by $500 or 5%, thereby drowning the bitcoin price under the psychological $7000 mark. Yesterday, the value of Bitcoin dropped to $3,800 (roughly N1.4 million) fueling fears that the cryptocurrency market is slowly crumbling. According to CoinMarketCap, the current total value of all cryptocurrencies has fallen from $830bn as at January 2018 to about $200bn. Its market capitalization has now fallen to $82 billion, down from more than $110 billion just two weeks ago. One then begins to wonder why cryptocurrencies, “the currency of the future” are falling. More importantly why now?
The market cap of the World’s top cryptocurrencies has fallen from around $620 billion to $379.3 billion in less than two months. This is majorly as a result of Bitcoin, the market leader. In other words, bitcoin may be in a freefall because demand for the cryptocurrency as a usable form of payment is slipping if not crumbling. More than four companies have given up the use of Bitcoin for transactions. Steam, a software developer geared toward gamer technologies stopped accepting Bitcoin December, 2016 citing transaction costs. The same goes for Microsoft and Stripe which ended Bitcoin transactions on the 23rd of April.
Furthermore, there is the issue of transaction speed. According to Ruslan Tugushev, CEO of Storiqa, a blockchain company for E-commerce with its own token, STQ
“The network is currently overloaded due to the arbitrage (among Asian Bitcoin traders) and the rush to trade Bitcoin. The blockchain gets heated like a frying pan when Bitcoin is used for payment purposes too instead of as a digital commodity. I think faster transaction speeds will require higher commissions for (Bitcoin) miners”
Bitcoin processes under 10 transactions per second. By comparison amazon processes hundreds of transactions per second using credit cards. According to a report made on January 10 by Business Insider, the North American Bitcoin Conference stopped accepting Bitcoin payments for tickets due to transaction fees and slow processing for payment
According to Xiahong Lin, founder of Bodhi, a china based decentralized prediction market platform, “Bitcoin’s problem is how it works as a payment from both a reliability standpoint and from a cost standpoint”. In essence, the futures market is experiencing difficulty in nailing a price on Bitcoin. Basically, a future market is an auction market in which participants buy and sell commodity and futures contracts for delivery on a specified future date. This means that normal state of the futures market is backwardation. The opposite of this is called contango, meaning nearby futures price is higher than the spot price. Contango is usually seen in markets of scarcity and since Bitcoins are finite, demand for them as a transaction currency is eroding.
The bottom line is that when a currency becomes less useful, it naturally weakens. Bitcoin has its flaws, not the least being transaction speeds and fees. Stripe said the company was still “optimistic about cryptocurrencies” and further stated that;
“There are a lot of efforts that we view as promising and that we can certainly imagine enabling support for in the future. In essence, Bitcoin may be viable for payments again in the future”
The founder of Bretton Woods research, Vladimir Signorelli opines that the utility [Bitcoin] as a medium of exchange of confronting bigger challenges than expected. That These huge headwinds for bitcoin. Whenever the Bitcoin universe shrinks, you see the price drop. There is almost a panic about it. He further added that “China regulations and bans couldn’t stop bitcoin, but maybe markets shutting it out as a form of payment will”.
The fortunes of most cryptocurrencies have been hinged upon the market value of bitcoin this year. when bitcoin started falling, Ethereum, ripple and EOS also fell hard by at least 10%. However, what seems to be interesting is how new solutions to these problems would improve the cryptocurrency market. For now, and for many, Bitcoin is not (yet) money.
By Jeje Yansola, Content Writer at DigiLaw