The Great Crypto Crash of 2018


The crypto apocalypse is upon us.

In the past 24 hours, bitcoin has fallen over US$1,300, or 17.9%, to US$11,125 (AU$13,971) per coin.

A fall like that would rattle even the most hardened investor.

Making matters worse is the near halving of the bitcoin price in the past month. Bitcoin peaked at US$19,343 on 16 December last year. Exactly one month later, the crypto finds itself down 42.34%.

Etheruem is in a similar spot of bother, dropping 26% in the past day. Other prominent cryptocurrencies, such as Ripple and Litecoin, are down 36.6% and 18.27% respectively.

Is this the start of the bitcoin bubble popping, as many are suggesting?

Well, for one, I disagree with the notion that cryptocurrencies are in a bubble.

That’s despite highly respected hedge fund managers calling it a bubble…and incredibly smart people like Warren Buffett, Ray Dalio, Jeremy Grantham — who’ve made hundreds of millions of dollars for themselves and investors in the past two decades — calling it a bubble.

When everyone starts calling anything a bubble, in my view, it’s just the opposite.

The same applies to calling a market top. When everyone seemingly reckons the peak of the market has been reached, pop your contrarian hat on. When everyone ‘agrees’, you can bet we’re only half-way through a rally.

In my view, this isn’t the start of any bubble popping. But it may become known as the ‘great crypto crash of 2018’ in time.

The reason cryptocurrencies have tanked this week

What we are seeing today is a pullback in the price of cryptocurrencies. Largely coming on the back of what the South Korean government may or may not do.

The South Korean government has said that it will consider banning all cryptocurrency trading.

South Korea is the third largest country for crypto trading, behind Japan and the US. One estimate suggests Korea accounts for a quarter of all global crypto transactions.

Let’s put the importance of the Korean market in perspective:

CryptoCompare says that 14% of ripple and 5% of bitcoin is traded in South Korea. 10% of the world’s ethereum is traded there; ethereum is also the second most traded currency in South Korea, behind the US dollar.

This is a country that has embraced cryptocurrencies wholeheartedly. Any news that the government could introduce legislation to limit trading and mining is going to rattle the crypto market.

However, there is a positive side to all this.

This period of volatility could be a way to shake out the weak investors. Those that are buying into cryptos solely for ‘fear of missing out’.

A near 50% fall in the value of anything is never ideal. Especially if you were one of those investors that piled into cryptos over the past month.

But the price rise of cryptos — and bitcoin in particular — was parabolic. And a crash like this was, in many ways, necessary. 

Not all hope is lost, however. Shane Chanel, equities and derivatives adviser at ASR Wealth, says that every incredible price drop has been followed by a rally more powerful than the last. He believes the January price tumble is perhaps an annual event that we haven’t yet realised: ‘[E]very year over the last three years, the cryptocurrency market has witnessed strong corrections 22 to 23 days prior to Chinese Lunar New Year.

The severity of the crash this time around is no doubt down to the heavy approach the South Korean government is taking with cryptos.

Sam Volkering, our cryptocurrency expert and editor of Secret Crypto Network, explained to his subscribers yesterday that this drop in crypto prices is exactly what the market needed:

If you’re pretty new to crypto markets, these are the days that harden you up, that turn you from a rookie into a seasoned veteran.

It was always going to come. We just weren’t really sure when. And so now you’ve been through your very first hard correction.

It’s times like these you need to exert control, patience and calmness. Go back to your original strategy, remind yourself what your time frames are and why you’re even in this market.

According to Sam, this is the kind of event that will turn investors into seasoned crypto traders. Sam’s been trading cryptos long enough to know that these wild price swings come and go. But, in the long term, cryptos appear to be going in only one direction — up.

If you’re in the crypto market, remind yourself why you’re investing in this burgeoning asset class. Ultimately, cryptos are a long-term plan to build wealth — they’re not about chasing easy dollars.

Kind regards,

Shae Russell,
For Money Morning

Since starting out in the financial markets over a decade ago, Shae has extensive experience across various aspects of the industry. Shae cut her teeth in the derivatives industry, teaching clients basic trading techniques with technical analysis.

Joining Fat Tail Investment Research eight years ago, Shae has worked across a number of publications, such as Australian Small-Cap Investigator, Gold Stock Trader and Microcap Trader. She’s spent the past two years however, honing her macro analysis skills alongside Jim Rickards, showing Australians how to invest and profit form global macro trends.

Drawing on her extensive experience, Shae is a contributor to Money Morning, and lead editor of sister-publication Markets & Money, where she looks at broad macro trends developing around the world, combining them with her distaste for central banks and irrational love of all things bullion.

Money Morning Australia