#5) A shakeout is coming
There were 1,450 CCs listed on coinmarketcap.com as of Tuesday morning with over half of them having a market cap under $10 million (note that Bitcoin’s was over $200 billion even with the price down to $12,300).
There may be some legitimate uses for the “smaller” CCs but I suspect that hundreds of them will disappear. This would in theory decrease the supply of CCs which could mean investors may move their money to other CCs. Or the investments could be wiped out and the stain of so many going under would decrease demand.
#6) ICOs (Initial Coin Offerings)
The rapid increase in Bitcoin’s price has led to hundreds of ICOs, or Initial Coin Offerings, launching in the past few months. Dentacoin was launched in August last year for the dental industry. The value of all its coins spiked to $2 billion last week and has fallen to $600 million.
While Dentacoin may be legimate and survive, there are also instances of what appear to be outright fraud. The SEC has warned about ICO fraud, and this CNN articledescribes three potential ones. While there aren’t any assets behind Bitcoin or other well-known cryptocurrencies, a huge percentage of the new ICOs really could be all fluff. If too many ICOs are fraudulent this will hurt investor demand for CCs in general.
#7) Hacking theft of CCs
Probably the most well-known and largest theft of Bitcoinswas Mt. Gox, a Bitcoin exchange in Japan. It was handling over 70% of all Bitcoin transactions but was hacked in February 2014 and 850,000 Bitcoins were stolen. At the time they were valued at $450 million and would currently be worth about $10 billion.
Just last month Youbit, a South Korean Bitcoin exchange, was hacked. Almost 4,000 Bitcoins or 17% of its assets, worth about $48 million, were stolen. A Reuters articlesaid that all customers CC assets would be marked down by 25%. That isn’t very comforting to CC investors.
#8) FOMO or Fear of missing out
The fear of missing out, or FOMO, has helped to create a lemming effect. Investors don’t want to miss out on the next big thing and to a degree also want bragging rights that they own Bitcoin.
It was reported by CNBC that Coinbase, a CC exchange, had 11.7 million accounts in October last year compared to Schwab’s 10.6 million. It increased in November, adding 300,000 in one week to get to 13.3 million. If this isn’t a rush to participate, nothing is.
However, this could turn on itself. If enough Bitcoin owners decide they want or need to get out the value of a Bitcoin could drop dramatically.
#9) Bitcoin mining scams
From an article I read on 99bitcoins.com about Bitcoin mining, there was a section about scams. It said, “There is a new concept called “cloud mining.” This means that you do not buy a physical mining rig but rather rent computing power from a different company and get paid according to how much power you own. At first this sounds like a really good idea, since you don’t have all of the hassle of buying expensive equipment, storing it, cooling it, etc.”
It went on to add, “However, when you do the math it seems that none of these cloud mining sites are profitable in the long run. Those that do seem profitable are usually scams that don’t even own any mining equipment, they are just elaborate Ponzi schemes.”
It wouldn’t surprise me that this is true given all the hype around Bitcoins. If this burns too many people it helps to break down the trust in Bitcoin and CCs.
#10) Becomes too associated with criminals and rogue states
One of the reasons that governments are concerned about Bitcoin and cryptocurrencies is that they could and are being used by criminals and money launderers. It has also been speculated that countries such as North Korea and Russia will or have been using Bitcoin and CCs to circumvent sanctions.
Since Bitcoin users can remain anonymous and can work from anywhere in the world, this could lead to an increase in demand for them at the margin. However, if governments are able to find a way to regulate them due to the above concerns then the demand would be lessened.
#11) Third parties changing their minds
There have been Bitcoin debit cards available from various providers. However, on January 5 it appears that Visa Europe told many of them to close their debit cards immediately due to being out of compliance with its regulations. While this was probably a very small market it is not a positive step in CCs becoming more broadly accepted.
#12) Bitcoin & Blockchain movie looks a lot like dot-com in 1999
Kodak and Long Island Ice Tea (now Long Blockchain Corp) are two companies that have recently changed their names or announced that they were creating cryptocurrencies or a digital currency platform. Both of them saw their stocks jump after they revealed they were getting into digital currencies.
While Kodak’s initiatives potentially have some merit, Long Island Ice Tea’s is pretty much beyond the realm of any imagination. If too many other companies jump on the CC bandwagon, it feels very similar to the dot-com era in 1999. That movie didn’t end well.
It all comes down to trust
In many ways the global financial system is based on trust between individuals, companies and governments. One thought to kick around is that we trust all the computer bits that show how many shares of a company we own, how much cash we have at the bank and the credit card charges and payments for the stuff we buy. To a large degree these are computer bits stored as various locations. Bitcoin and other CCs are similar in this respect. However, if the trust in CCs falls apart it will lead to a fall in their prices.
Please feel free to check out my other Forbes articles, “9 Reasons Bitcoin Could Hit $100,000 Or More” and “3 Reasons To Not Get Excited About Seagate’s Investment In Ripple/XRP,” regarding digital currencies.
[Source : https://www.forbes.com, 14/Feb/2018]