The whole cryptocurrency market has been on its way down the hill since the beginning of the year. Majority of the coins have lost more than 90% of their value when compared to their all-time high. This, in turn, has crushed the investors’ sentiments with several claiming that Bitcoin is near to its end and is at the point of entering a death spiral phenomenon because of the reduction of its price below the mining cost.
However, there exists advocates who still believe that the cryptocurrency space will continue to stride, and would be the pathway for giving power back to the people. This includes Anthony Pompliano aka Pomp, the Founder of Morgan Creek Digital Assets. In his latest episode of Off the Chain, the Founder discusses the market’s retracement back to September 2017 level, with Ari Paul, the CIO of Blocktower – a leading cryptocurrency investing firm, wherein the CIO said:
“There’s this temptation by a lot of people to say, in fact there was an article with this is the headline Jamie Dimon and Roubini were right, crypto is dead because it’s down 75% or 80% so that like there’s this this framework of like, how could an asset be down 75%-80% if it wasn’t fundamentally broken and that just like silly”
Paul went on to say that Bitcoin was $3000 in September 2016, and in the technical analysis perspective, it was the beginning of the retail parabolic bull rally which was a speculative short-term bull. He further added that this is basically a retracement of a two-month speculative parabolic move. He said:
“In other words, you don’t need a fundamental change to do that. You just need people who got overzealous, they were momentum chasers and you retrace that move. The unusual thing is, in stocks when the same thing happens. It just happens to such a smaller debris. So you haven’t resolved Cannabis Stocks. And that was kind of extreme. That was a rare case.”
He further added:
“But the key thing I always try to remember is that crypto-assets are, the price movements are logarithmic meaning you get these 10 x advances. You get these 80% collapses interest, it’s just a hyper volatile asset that’s not unique to crypto, you see the same in […] any kind of hyperbolic speculative asset”
This was followed by Paul stating that the fundamental difference between cryptocurrencies and equities is that there is no liquidation value in crypto, adding that “this is kind of bad”. He went on to say that as Bitcoin falls lower in price, it is less valuable, adding that there would be less liquidity, less useful as a medium of exchange and as a store of value.
He further stated that this would also lead to less security and hashpower would be tied to the price, adding that the best case scenario is that the hash power falls gradually along with the price which would mean it is less secure network and valuable.
However, the worse scenario, according to him, would be elongating block times, greater risk of 51% attack, and potentially a death spiral, which to him is an “exaggerated risk that is very unlikely to cause the death of Bitcoin”. Nonetheless, it could definitely result in 40 minute block times and rise in the transaction fees, which is fundamentally a less valuable network, Paul stated.
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