Crypto Market Correction and China’s Heavy Hand
ICOs prohibited in China and Bitcoins Price Pullback.
The Crypto markets have shed a staggering USD 37bn (4 September 2017). This bloodbath is the result of investor caution and developments around Initial Coin Offerings(ICOs) being banned in China. The total market capitalisation, for the first time in history, reached an all-time high of USD 178 bn, with Bitcoin surpassing USD 4975 per BTC on 2 September 2017. When Bitcoin reaches psychological price peaks, investors lock-in profits and create short (sell) positions to hedge their bets and profit from a free-falling market. Bitcoin prices did not breach the USD 5000 mark, with short positions creating downward pressure on the Crypto market as a whole.
Added pressure from the recent announcement by the Republic of China, has outlawed ICOs. The Financial Regulator has ordered an immediate halt in Token trading and issuing. The rise of the ICO funding mechanism, has raised more than USD 1.8 bn since 2013. CNBC (2017), estimates that in 2017 alone, the bulk of the funds raised via ICO, have come from 92 ICOs which collectively have raised USD 1.25 bn.
The rise of ICO scams, website hacks and an ICO frenzy, has propped-up the Ethereum price to an all-time high this year (USD 396 on 2 June 2017) creating overnight millionaire’s. Unaware and gullible investors have flocked to ICOs, which usually create returns more than 2–20x the initially lump sum. Talk among speculators and investors in Chatrooms, Slack and Telegram, all point to ‘get rich quick’, ‘pump-and-dump’ and ‘buy-to-sell ICOs’, instead of buy-and-hold, ICOs.
The sleeping giant, China, has created a notable percentage of the ICO demand for Cryptos and this ‘ICO Mania’.
To cool the situation, Chinese regulators have started to crackdown on ICOs and Crypto currency use due to its destabilizing effect on foreign currency reserves and monetary policy implications. According to Coindesk (2017), the most impacted Crypto tokens were:
…”with OmiseGo and Qtum declining from total market values of above USD 1 bn earlier this week to USD 781 mil and USD 638mil today”.
To make matters even more interesting, Paris Hilton is the latest celebrity endorsement to promote an ICO, Lydian. This is undoubtedly heading towards bubble territory. In August 2017, The Money Team, (Floyd) Mayweather successfully created a hype around Stox’ ICO, selling out in minutes.
How to Protect your Crypto from Sharp Price Corrections
Holding a diversified portfolio allows a spreading of risk. The old adage “Don’t keep all your Cryptos in one basket”, as cliché as it may sound, is what Crypto investors need, in order to gain long-term growth. Crypto markets are highly volatile, having one exposure, to one Crypto, is highly risky. The Crypto space has its growing pains, with sharp rises and downward price corrections happening in minutes.
If you are a speculator and short-term investor, holding a diversified Exchange Traded Fund (ETF) can help you ‘park’ your cash until you take a position or when markets are plummeting. Utilising risk management derivative instruments is useful in managing your market exposure. Shorting (taking a sell position) when prices are falling, can still be profitable. Using indices, ETFs and derivatives (options, forwards and futures) are some traditional finance instruments which investors and speculators use to lock-in profits and reduce downside risk.
At Hedge, we not only allow you to buy the market with one click, but make investing in Crypto as easy as email and as secure as Fort Knox.
Using the Hedge Platform, you will have direct access to your funds, buy and sell derivative instruments or track an index. If you are new to Crypto and just want the possibility to own the Top 30 Crypto currencies, our flagship Crypto Traded Indices™ give you a cost-effective, rulebook based exposure to Crypto.
Hedge gives investors, evangelists, speculators the opportunity to:
“Buy the Crypto market with one-click”.