Facing the Great Cryptocurrency Crash of 2018
The moment of truth has finally arrived. We’re witnessing the great cryptocurrency crash of 2018.
The granddaddy of cryptos just bit the bullet and with it, the dominoes have begun to fall. While all the top 10 cryptocurrencies are trading lower by more than 20%, the Ripple crash eclipses them all with more than a 33% drop in prices in just one day.
It is nerve-racking because this cryptocurrency alone has wiped out more than $40.0 billion from the market in just one week. That’s the most any cryptocurrency has lost in market value, after Bitcoin.
The optimists are arguing that this could only be a market correction. After all, 20% drops are a usual sight in the cryptomarkets.
While I, too, have been one of the optimists, I’m throwing in the towel this time. Firstly, because prices have precipitously dropped over the past one week and are showing no signs of reversal. And secondly, because this correction has spread like an epidemic engulfing the whole crypto-universe.
I’m scrolling down the list of top 100 cryptocurrencies and I barely spot green on there. Deep crimson double digits are flashing everywhere. It is extremely underwhelming for an analyst like myself. I can’t imagine what you, as an investor, must be going through. But I’ve some conciliatory propositions for you so bear with me.
Ripple, after Bitcoin, had become the most sought-after cryptocurrency in the investor circles. There’s a certain narrative that’s been driving demand for this cryptocurrency. It goes something like this.
“Did you hear there’s a cryptocurrency backed by the banks? I tell you, it is the real deal. Buy it before it’s too late. Just buy, buy, buy.”
Not many of the investors who bought it understood its technology, far less understood its true worth. They have been buying because some XYZ person they trust told them to.
When investors are driven by such mob mentality, they buy in herds and they sell in herds. When they buy, they cause a price bubble. When they sell, they trigger a crash.
So, I expect any sane investor to have seen this coming. Question is, what happens next?
To answer that, let’s first revisit what exactly happened in the past one week that caused this fiasco.
The Asians Trigger the Great Crypto Crash 2018, the Exchanges Make It Worse
To begin, the Asians are selling.
The governments of South Korea and China (but mostly South Korea) have triggered this chaos by floating the idea of a complete ban on cryptocurrency trading.
Mind you, both South Korea and China are two of the biggest markets for cryptocurrencies. They are as big as the Japanese and the U.S. markets, if not bigger. A significant percentage of crypto investors are concentrated here. So you can imagine that if they begin to offload their Ripple hoardings, prices would have serious trouble finding support. That’s exactly what’s happening.
Another party aggravating this crash is the exchanges. The cryptocurrency exchanges have set up roadblocks for new buyers to come in and save the prices from crashing.
The majority of the cryptocurrency exchanges have either temporarily disabled new registrations or are taking weeks to verify new accounts. The result is that there aren’t enough bidders around to give support to plunging prices. I’ve covered this issue at length here.
That said, one thing is certain. This cryptocrash has more to do with technical market forces than with the fundamentals underlying these cryptos.
Simply put, if you weren’t driven by the herd mentality in your investment, then the fundamental factor that drove you to Ripple is still intact.
This Is How You Survive the Ripple Crash
Despite the crash, Ripple remains a promising technology for the banking industry to cut costs on cross-border money transfers. Global banks are continuing to take interest in this technology. It is forming new partnerships on an ongoing basis—with the most recent being with MoneyGram. It has managed to shed its image of a centralized cryptocurrency by placing a good 55 billion XRP in escrow.
And above all, Ripple is still up more than 60% in the past one month and more than 260% in a year.
Chart courtesy of TradingView.com
At this point, if you’re an XRP investor, one advice may twist your fate. Believe in the power of “HODL.” Because as long as you are “HODLing,” then technically, you haven’t lost a penny.“HODL” is shorthand for “hold on for dear life.” It is an oft-repeated phrase in the cryptocommunity to remind investors to not give up when the tide shifts.
The idea is very simple. HODLers believe that you realize a loss only if you sell at a loss. As long as you hold, you only have an unrealized loss. HODLers don’t panic-sell. They recoup their unrealized losses by holding on to their investments until the markets recover.
Empirical evidence shows that long-term investors outperform short-term traders. Unless it’s a pump-and-dump scheme or a scammy shell investment, your odds of winning in a fundamentally strong investment are much higher in the long run.
Ripple is a unique digital currency in that it has piqued the interest of some of the banking giants. But despite its promising fundamentals, it couldn’t survive the cryptocrash. The Asian scare of a cryptocurrency ban sparked a marketwide crash that no cryptocurrency could weather, not even the mightiest Bitcoin.
But let me remind you that Bitcoin itself has survived at least two major crashes in the past, and both times, it emerged from the rubble alive and well. Bear in mind that those were old times when not many had heard of this crypto-coin and far less had actually invested in it.
This time, the recovery may come sooner than later because day by day, more and more investors are wanting to invest in cryptocurrencies. In fact, many are already on the sidelines waiting for exchanges to reopen registrations and speed up verifications.
So this Ripple crash may be a short-lived tragedy that will eventually pass. Before we know it, the bull may be back in the arena to knock out the bears.
To sum it all up, if I were a Ripple investor, I would transfer my holdings to a cold wallet, tuck it under my pillow, and forget. Because I believe in the power of HODL.