Trading in Turbulence: Why I lost Touch with Bitcoin

But how has Bitcoin become synonymous with the entire digital financial system?

Bitcoin has long been recognised as the king of altcoins, which is no doubt aided by its status as the earliest and most successful of its kind. This digital trendsetter has heralded a new wave of cryptocurrencies based on decentralised P2P networks and has led to numerous emulators and spin-offs. Given that Bitcoin has existed for over a decade now, many of its predecessors have made significant improvements in terms of stability, security and usability.

Can the grand old cryptocurrency keep up with the new kids on the block within an ever-developing landscape?

In Bitcoin’s defence, its cutting-edge infrastructure upon release has situated it in a dominant position in the altcoin world. Bitcoin can boast proven usage as a quantifiable unit of value. Its 10-year lifespan without major failure means Bitcoin has a considerable lead over the rest of the market and has withstood a rigorous test of time while more competitors have flooded the market. However, despite its healthy pedigree, the world’s most popular digital currency appears to be experiencing something of a decline – or at least is failing to expand alongside the rate of the market.

May 2019 saw Bitcoin slump by $1,000. Given its frequent market jitters and wild highs and lows, the seismic decline hardly caused a stir in financial news. Bitcoin is characterised by its ability to turn gigantic profits and losses for investors in a matter of hours.

(Despite large volumes of news coverage over the past 10 years, cryptocurrencies like Bitcoin remain mysterious to many. Image: Statista)

The chart above shows that 63% of respondents in the UK claim that they’re uninterested in using Bitcoin because they “don’t know enough” about the cryptocurrency. As a key player in shaping the crypto landscape and leveraging appeal for newer investors and users of the digital finance markets, Bitcoin has clearly failed in offering prospective buyers a healthy level of understandable and accurate information on the ins and outs of crypto usage.

Today Bitcoin finds itself immersed in an industry that’s evolving alongside newer and more efficient technology and forms of conducting transactions. Rivals in the world of digital currencies are becoming more efficient and technically able to support widespread usage. While in Bitcoin has offered very little in terms of solutions for the relentless volatility that drives the market, investors may be forced to pin their hope on a newer entity to provide a calming influence.

Market speculation typically drives the volatility that we see in cryptocurrency values. Demand spikes for certain coins are fuelled by trades and speculation rather than any external influences. It’s clear when we recognise that in 2018 the market capitalisation of cryptocurrencies hit an all-time high of over $800bn but hit an all-time low of $200bn just one year later.

Efforts to improve the conditions of the crypto market

Here is where the stablecoin enters the fray. Offering a fundamentally different structure to Bitcoin and its lineage, stablecoins have the potential to turn the crypto revolution on its head.

Stablecoins were developed as a means of tackling extreme crypto market volatility head-on. They aim to attain a level of stability by anchoring their values to tangible real-life assets. These assets can include fiat money like the US Dollar, exchange-traded commodities like gold, or even other cryptocurrencies.

While it’s hard to imagine a crypto market that’s free of erratic behaviour, the mass buying and selling of digital currency ultimately weakens the viability of what exists as a niche market.

The stabilising effects of stablecoins are two-fold. Asset-backed stablecoins like Digix Gold Token (DGX) have the ability to mitigate price volatility backed by exchange-traded assets, or by tethering to fiat currencies. While algorithmic stablecoins rely on computing logic to monitor the supply of currency to attain stability through mimicking the mechanisms of central banks.

Stablecoins are experiencing an exponential rise in popularity worldwide. CryptoCompare reports that the biggest market cap for a stablecoin already stands at $4bn.

The same report acknowledges that Bitcoin has pledged to develop a stablecoin solution within the coming years. However, their actions may prove too little too late, and with so much ground to make up on this side of the market we could be witnessing the first cases of Bitcoin losing key market territory to emerging rivals.

Some stablecoins like Tether (USDT), a digital currency that’s anchored to units of US Dollars, are often used to trade Bitcoins. One unit of Tether is designed to equate to $1 and should never deviate from this value – so far the cryptocurrency has delivered on this purpose.

So here we can see clear evidence that shows it’s possible for stablecoins to compliment Bitcoin as well as compete. In fact, they’re so versatile that they can provide a form of infrastructure from within the crypto market. As of yet, Bitcoin has been sluggish in its foray into the realm of the stablecoin – where its popularity would surely help to turn any entry onto the market into a pack leader – but emerging alternatives are continuing to thrive without such disruption.

Stablecoin developments are potentially vital for the future of the crypto market. Considering that currency is essentially a store of value, it should’ve been speculative so much as predictive and stable as a means of reaffirming investor confidence and establishing the ecosystem necessary to enter mainstream usage. The total stablecoin market value share has more than doubled over the past year and is only continuing to grow.

Time will tell whether or not we could be about to witness the crypto-giant surrender its monopoly on a market that it’s ruled over the past decade.