The price of the most famous cryptocurrency has halved from its all-time high in November at nearly $69,000. How do we explain this movement?
The bitcoin is moving, this Tuesday, at 36,000 dollars, after falling to 33,000 dollars, Monday, losing up to 52% from its record in November. The most famous cryptocurrency had then approached 69,000 dollars.
This is “a major test of support,” according to Craig Erlam, market analyst at Oanda. “The psychological shock of a loss [at] $40,000 is nothing compared to what happens if [the] $30,000 falls.” In a note released Monday night, he points out that the cryptocurrency reacts like the global markets, but in an amplified way.
An opinion shared by Alexandre Stachtchenko, director of Blockchain and Cryptos at KPMG France: “Limiting liquidity will have an effect on the stock market and therefore on crypto-currencies, which are correlated to it.” He is referring to the hardening tone of the US Federal Reserve, which is considering not only the end of its support measures for the economy, but also several rate hikes. The Fed Committee meeting this Tuesday and Wednesday will be crucial from this point of view.
However, he is not overly concerned: “We’re looking for an explanation for the decline, so we’re finding it, but from a fundamental point of view, there hasn’t been much. The network is more protected than ever.” The recent setbacks for miners in Kazakhstan, including a brief Internet outage, did not greatly dent the network’s computing power, which has since rebounded, higher than ever.
In the long run, he is more concerned with strengthening the customer knowledge measures (KYC) of exchange platforms. One of the leading exchanges in South Korea, Coinone, recently decided to stop allowing transfers to wallets that do not apply such a procedure, which includes Ledger-type cold wallets (not connected to the Internet).
This Monday, January 24 was the date of implementation of this provision, reports the specialized news site The Block. According to the media, it is possible that other Korean platforms will follow the example. They would thus align themselves with the government’s very strict policy.
This news has caused a stir since it runs counter to the original spirit of Bitcoin, which is not to require this type of information. Accounts on the blockchain are pseudonymized: that is, it is possible to track their transactions without knowing who they belong to… unless the information is revealed (or the transactions betray the person).
“Remove your bitcoin[s] from the exchanges before it’s too late!” tweeted Cointribune journalist Nicolas Teterel in reaction to the news.
Alexandre Stachtchenko, this tightening of control over platform clients is a phenomenon that is likely to become more pronounced: “I believe that we are going to follow the same path as the Internet. At the beginning, everyone participated freely, then the Gafa turned it into a very centralized space by denying the original principles of confidentiality; the slope we are taking is that everyone is at Coinbase [one of the main global platforms, editor’s note]. I’m pretty pessimistic.”
Transactions directly on the Bitcoin blockchain will certainly continue, according to him, but they will only be reserved for a few geeks. If this scenario were to be confirmed, the value of Bitcoin would be likely to be “drastically reduced”, without however falling to zero. However, he refuses to make any predictions.
Top EU official targets proof of work
To all this news, we must also add the words of Erik Thedéen, vice president of the European Securities and Markets Authority (Esma), to the Financial Times last week. Concerned about the consumption of electricity needed to run proof-of-work blockchains, such as Bitcoin, and therefore their impact on the environment, he said: “the solution is to ban proof-of-work”. This is not a new idea (researcher Alex de Vries is a strong advocate), but the fact that it comes from a senior European finance official is a sign that it is being taken seriously.
However, China has already applied measures last spring against bitcoin mining when it was the country that accounted for the majority. And while a drop in computing power was indeed observed afterwards, this did not prevent it from progressing in the medium term.