After a couple of weeks of steady gains, Bitcoin and the crypto-currency markets have crashed once again, wiping them all out in only one day. Media reports are speculating that a Goldman Sachs announcement could have been the catalyst, but is this really likely to have been the case?
Wednesday saw the biggest one day sell-off for crypto markets this year resulting in almost US$40 billion being wiped out. Bitcoin led the decline when it plunged $400 in just over an hour and continued to fall throughout the day, resulting in a loss of more than 10%, according to analytics website coinmarketcap.com.
The world’s second largest crypto-currency, Ethereum, suffered even worse, falling by more than 15% to its lowest level for over a year. Total market capitalization for all digital currencies nose-dived a similar percentage over the 24-hour period, which was one of the worst for the industry in 2018.
Following a yearly low point on Aug. 14, crypto markets had started to recover; only to have all of this wiped out in one bearish swoop, dumping billions out of digital assets. Since its all-time high of about US$830 billion in January this year, the entire crypto market has crashed more than 75% to date.
Many in the media blamed Goldman Sachs for the plunge. The banking behemoth made an announcement that it would be postponing plans to open a crypto trading desk, according to reports.
The financial giant cited the uncertainty of the industry’s regulatory landscape and stated that it may revisit plans in the future, but at the moment they were not a priority.
The fact remains, however, that Goldman Sachs, and Wall Street in general, is still very interested in the crypto space. Goldman is heavily invested in Circle, which is a competitor to Coinbase, one of the largest crypto-currency exchanges in the world.
It also still intends to offer further Bitcoin futures and custody in the near future which would put it ahead of Wall Street rivals.
The likelihood of this one announcement causing such a huge sell-off is very slim. Crypto traders are a fickle bunch and FUD (fear, uncertainty and doubt) fueled by mainstream media can accelerate an already established down trend.
Looking back at crypto markets in 2014 shows a very similar pattern to 2018, one huge pump at the beginning of the year, then a slow year-long bleed out before recovery again the following year.
Crypto-currency markets are volatile to say the least, the technology is embryonic and it needs time to find its feet, especially amongst institutional investors.