What next after cryptocurrency bubble bursts? Bitcoin, the original and most valuable crypto, has plummeted from $19,000 to $6,000-$8,000.

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Bitcoin, the original and most valuable cryptocurrency, has plummeted from $19,000 in December to bump along at a $6,000-$8,000 range since June. Advocates see bitcoin, which unlike fiat currencies is not controlled by a central authority, as a store of value. But its short history has been marked by rapid rallies and sharp drops.


Scott Weiss, an Arizona lawyer, bought his first bitcoin at its highest price in December. “I’m not a professional investor, I’m a lawyer,” he said, reflecting on his losses. “These are the types of mistakes we make. We get caught up in the hype.” He is resolutely holding.

Mr Weiss is not alone. Most cryptocurrency advocates still exude optimism. Trading platform eToro, known for bold cryptocurrency adverts on the London Underground, is not scaling back its marketing despite the slump, said Iqbal Gandham, Etoro’s managing director.

Jordan Fried, vice-president of global business development at blockchain start-up Hedera Hashgraph, which raised $100m from institutional investors, said the speculative rush had provided some legitimate early stage companies with capital to build services to sustain the nascent cryptocurrency industry.


In the City of London, the online retail trading industry, whose profits had fallen in becalmed stock markets last year, seized on volatility of better-known digital assets like bitcoin and ether, its closest rival. Offering crypto-based derivatives and charging punters hefty fees to trade them, many profited handsomely. Plus500 reported a 418 per cent year-on-year rise in earnings in the first quarter of 2018, citing “high levels of interest” in its cryptocurrency products.

Both Plus500 and FTSE 250 trading company IG acknowledge cryptocurrency trading interest has now waned.

With prices tumbling, bitcoin investors have retreated to holding, suggests research by Unchained Capital, a start-up which lends cash against cryptocurrency.

Bitcoin’s slide coincided with the introduction of bitcoin futures contracts by the CME Group and Cboe Global Markets, which provided crypto investors with a hedging opportunity for the first time while also allowing traders to bet the price of bitcoin would fall.

The demise of once ferociously traded new digital coins from 2017, with names like DentaCoin and SpankChain, also sucked money from the overheated market.

Entrepreneurs had created hundreds of tokens in so-called “ initial coin offerings” (ICOs), barely regulated fundraising vehicles that unlocked pools of money mostly held by retail investors — an attractive proposition for both early stage entrepreneurs and get rich quick schemers. “Who doesn’t want to print free money?” remarked Michel Rauchs, blockchain and cryptocurrency lead at Cambridge university’s Centre for Alternative Finance.

Telegram, the messaging app, raised a record $1.6bn in cash from investors to fund development of its own cryptocurrency.

While tokens offer no investor protection, many punters enjoyed rapid appreciation of their crypto holdings as others piled in. Groups of traders co-ordinated to pump the price of thinly traded coins and profited by selling them at artificially high prices. By early January, the height of cryptocurrency fever, at least 39 digital currencies had market capitalisations of $1bn or more.

“Now we’ve realised that a lot of these tokens don’t power any useful application, and if they do there’s only a handful of users,” said Mr Rauchs. As speculative mania has dimmed, just 15 coins currently have a $1bn-plus market cap, according to CoinMarketCap. DeadCoins.com lists abandoned tokens.

China warns public over ‘blockchain’ Ponzi schemes.
Retail investors told to be on guard against buzzwords and dubious marketing claims.

Many investment schemes are ‘hyping the blockchain concept to raise funds illegally’, a joint statement from government agencies said. China’s government has warned of “criminals” attracting retail investors into Ponzi schemes using buzzwords such as “blockchain” and “virtual currency”, as official concerns over risk trump support for financial innovation.

Many investment schemes “are not really based on blockchain technology but are hyping the blockchain concept to raise funds illegally”, the People’s Bank of China, the China Banking and Insurance Regulatory Commission, the Public Security Bureau and two other agencies said in a joint statement on Friday.

The agencies did not announce specific policy actions but warned the public to be on guard against “fraud” and report suspicious activities to authorities.

Marketing claims such as “value will only rise, never fall” and “high return, low risk” are characteristic of fraud, the statement claimed. The warning was issued as Chinese regulators escalated their crackdown on cryptocurrency trading and initial coin offerings.

A multi-agency task force on internet finance will take measures against 124 cryptocurrency and ICO platforms with servers located outside China but which substantially target Chinese residents, the official Shanghai Securities News reported this week. The report did not specify how authorities would act against foreign groups.

Internet group Tencent also shut down at least four major public accounts related to cryptocurrencies on its popular WeChat mobile messaging platform.

The company said in an emailed statement that the accounts violated instant messaging regulations that the Cyberspace Administration of China issued in 2014.

ICOs enjoyed a brief but intense boom in China in mid-2017, but in September the government declared them illegal and shut down platforms that facilitated such deals.

Days later, a multi-agency task force on internet finance shut down exchanges for trading bitcoin and other cryptocurrencies. Before the shutdown, local exchanges had been permitted to continue operating after an earlier campaign forced them to strengthen controls against money laundering and capital flight.

Even after local platforms exited, however, trading and ICO investment continued under the radar, with investors using WeChat or other messaging tools to facilitate informal transactions.

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