Bitcoin’s herculean rise to fame has made it the most sought-after cryptocurrency in the world. Ethereum, a newer rival to bitcoin, has until now not received that much attention. However, this currency is slowly picking up as more people become aware of digital currencies. A rise in investor interest is not always translated into rising prices. Bitcoin and Ethereum are facing the same trouble. Here are three reasons why both the digital currencies are crashing.
There Is a Bubble
Experts are now certain that Bitcoin has entered a bubble. Ethereum is taking advantage of rise in investor interest. However, it is being sucked into the bitcoin bubble. After Bitcoins climbed wearily to $1000 at the start of the year, the value rose sharply to $3,000 only to quickly retreat $500. The rollercoaster has made bitcoin a very unpredictable currency. Experts suggest that the currency is passing all the norms of an asset bubble and it could soon deflate. Ethereum reached its all-time high in June and prices have nosedived since then, just like bitcoin. As with Ethereum, people are now asking is the future still bright for Bitcoin?
Concerns from Regulatory Authorities
With a digital currency like bitcoin or Ethereum, it could be virtually impossible to track the user. Bitcoins and other digital currencies exist chiefly because a record of their ownership has been maintained on their respective networks. The network is highly decentralized, which could create troubles for law enforcers to find records of currency ownership. It could be a herculean task to define the source of any funds as they get distributed on this wide decentralized network. Even a bitcoin wallet is not the best way to find the user because of its pseudo anonymous nature. Concerns from regulatory authorities over the use of such funds can kill investor interest.
Speculative Money and Confusing Laws
A lot of speculative money has been fueling the rise of bitcoin. Bitcoin leapt 150 percent this year to trade beyond $3,000 point. However, bitcoin went down by 12 percent over fear of split between bitcoin and blockchain startups. Additionally, Ethereum experienced a 20 percent fall simply because the cryptocurrency industry is stressed. The extreme volatility of these currencies is putting them at par with penny stocks. Note that many investors are using bitcoin and Ethereum as ways to trade speculatively, which is not known to give good returns historically.
The US government recently started to pull bitcoin into the mainstream by working with Coinbase. Note that US deems Cryptocurrencies as ‘property’ while the European countries don’t. Tax liabilities for this currency are different in different regions of the world, creating confusion everywhere. It gives a chance to people to dump their assets into digital currency and avoid a tax liability too.