With JP Morgan's Jamie Dimon coming out swinging at Bitcoin today - on top of news and rumor from that great eastern land of the dragon, otherwise known as the People's Republic of China that shook the market - the last few days have seen the biggest downward correction in the cryptocurrency market since July and potentially before that.
It has been a very ugly few days for those of us who have placed a portion of our hard-won and tightly clung to wealth into cryptocurrencies. Nobody likes to be 15 per cent down on a day, or 25 per cent down over a week.
Then again, cryptocurrency is no place for people who have no stomach for risk and volatility. I mean the reason increasingly more people have entered the cryptocurrency market over time is because the vicious punches of 15 per cent daily losses have been more than offset by counter-punch gains, with altcoins sometimes daily gains of 100 per cent, and things like 1000 per cent gains for some coins over a month. (Altcoins mind, and usually smaller market cap ones, larger cap coins not to rise with quite such extreme price movements).
New entrants to the market though who bought into Bitcoin this month near the top will be very rattled. They will either leave, or learn a lesson. But whatever the number be that leave, it is my firm belief that over time they will be outnumbered by orders of magnitude by new entrants into the market.
It would be fantastically unrealistic to expect to be able to operate in a market that gives you from 30 per cent upwards to 100 per cent daily gains, and in which the price of your asset doubles multiple times within a period of months, but where large daily losses of 10 or 20 per cent were not a risk. Large daily losses in cryptocurrency aren't a risk, they're a certainty, and anyone operating in this market without clarity about this is going to get hurt financially.
But the reason people participate in the market is because as an asset class, cryptocurrencies have outperformed every other asset I can think of over time. Let's put it in perspective. according to coinmarketcap.com on 13 April 2017 Bitcoin's price stood at $1159. It then rose to roughly $4937 on 2 September 2017. Now, less than two weeks' later, it has dropped back to $3838.
No consolation if you chose 2 September as your entry point, but that is a phenomenal performance. The thing is, and I have always said it, we need to consider downside as well as upside risk, and too many people in crypto focus on the upside risk. Any trader in mainstream financial markets who focused on upside risks and put downside risks out of their thinking would be out on the street faster than you can say "China ICO ban".
So please consider downside risks. Think about the fact that Bitcoin's top coincided with Korean exchanges like Bithumb becoming by far the largest exchanges by volume, and the fact that now less than two weeks' later they are no loner and that Korean regulators are rumbling their voices about regulation.
So keeping in mind downside risk, do I consider the last few days selloff indicating a large and/or extended bear market for cryptocurrencies? I do not. To be more specific, I think the total market cap of cryptocurrencies will be higher at the end of 2017 than it is now. There are plenty of reasons why I think this. For one, I think the net influx of fiat into cryptocurrency will continue over this year, and I do not see net withdrawal. And the regulation, in China and elsewhere, that seems to spook the market in the short term I do not view as a bad thing. To me it's the sign of the success of cryptocurrencies, because regulators now perceive cryptos to be significant enough to need to deal with, whereas for many years before when they did not seriously investigate regulation obviously they then thought cryptos were too small or peripheral to worry about.
So long term, increasing regulation is a good thing. Short term, it isn't, because it does specific technical things - like reduce Korean and Chinese exchange volume - that sucks out volume and puts downward price pressure.
With these things in mind, I would be cautious investing in the cryptocurrency space, but would be willing to do so. At this point, my preference is probably towards certain altcoins, and in particular any altcoin that has legitimate development, a coherent use case, and most importantly hasn't gone through a pumping cycle yet. (Pumping, as cryptocurrency holders know, is when a coin starts to rapidly rise in price such that it doubles in value repeatedly over a short period of time. There are surprisingly few legitimate coins that have not gone through this process this year).
Which leads me to my preference at this point in time, which is ZenCash. This coin is very heavily down today, in fact down slightly more than the market as a whole. But I like it's prospects. It's not that it doesn't have downside risks, it's just that I see that it has more upside risks given that it hasn't pumped yet.
We'll see. I think the market's vicious drop today may partially reverse by tomorrow. If I were buying at this point though, for any coin, I would dollar-cost invest in over a period of months, because while I still think the upside risks outweigh the downside for the remainder of this year, it's not the case of "jump on this ship as it rises or you will miss out" as it was for much of the year up until now.
I guess that's all from me: consider downside risk, ZenCash in the altcoin space, and dollar-cost invest over months.