Why CryptoCurrencies are Falling
Description
There is a huge drop in the market. The underlying technology hasn't changed and there isn't any substantial news to explain this. There are a lot of theories put forward to why Crypto is dropping. I'...
AI Analysis
Recently, cryptocurrencies have experienced a significant freefall, with major assets like Ethereum and Bitcoin seeing substantial drops without any clear underlying news or announcements to explain it. While there's a lot of speculation, including theories about ICOs cashing out, big banks getting involved, or dark net activities, the core argument is that the market's expectations for rapid development and real-world adoption are outpacing the actual speed at which the underlying technology can evolve. This creates a sense of disillusionment among investors who are putting a lot of money into a still-nascent, "beta" stage technology.
Here's a breakdown of the key points on why cryptocurrencies are falling:
* Sudden Market Carnage: Over the past few days, cryptocurrencies have been in a "total freefall," with Ethereum dropping from nearly $300 to below $200, and Bitcoin falling from around $2300 to $2200.
* Lack of Obvious Cause: There's no major news or announcement in the crypto world that can explain such a rapid and widespread drop, leading to extensive speculation.
* Common Theories for the Drop:
* ICOs Cashing Out: Many initial coin offerings (ICOs) have raised significant funds, and these projects might be cashing out their cryptocurrency holdings for fiat to cover operational costs and pay employees, increasing selling pressure.
* Big Banks' Influence: Some speculate that large banks are getting involved, either by buying in or cashing out, manipulating the market.
* Dark Net Conspiracies: Other theories involve shadowy activities or conspiracies happening on the dark net impacting prices.
* The Disillusionment Argument (Core Theory): The fundamental reason for the drop, in my opinion, is a growing disillusionment in the market because cryptocurrencies aren't updating or improving fast enough to keep pace with the massive amount of money being invested.
* Development Speed vs. Funding:
* Simply pouring more money into a project, even millions from an ICO, doesn't automatically speed up development.
* Cryptocurrency development relies on small teams of highly skilled engineers working in a decentralized manner.
* Crucial debates and sorting out technical issues take significant time, which inherently slows down the development process.
* It's challenging and often unnecessary to expand development teams to hundreds of employees; many new hires might just be customer support, which doesn't directly accelerate core tech development.
* Investor Expectations vs. Reality:
* Over the past few months, an enormous amount of money has entered the crypto market; for example, Ethereum went from $20 to almost $300 in a short period – a 15x increase.
* Investors putting in this money expect rapid updates, new announcements, and everything to work flawlessly.
* However, cryptocurrency is still in a very "beta" or "undeveloped" stage with many core issues yet to be resolved.
* Gaming Industry Analogy: I relate this to my experience in the gaming industry:
* When we launched a free-to-play social game in China, players initially enjoyed it and spent money.
* Once they started spending, they rapidly demanded new content (items, battles, challenges, quests, rewards, skins).
* Despite having the funds, our development capacity couldn't keep up with the demand for new features.
* This led to player disillusionment, as they got tired of the existing gameplay, and many left.
* I see a similar pattern in crypto: investors' high expectations for new technologies and real-world uses are not being met by the current development pace.
* Current State of Real-World Utility:
* Right now, many real-world applications of cryptocurrencies are still theoretical, with practical, good projects possibly "a year or two away."
* Even projects like the Ethereum Name Service (ENS), while innovative, are still "primitive" and primarily serve as testbeds for future decentralized applications.
* The Bitcoin Transaction Fee Problem:
* Despite increasing adoption (e.g., in Japan's supermarkets), cryptocurrencies aren't truly ready for mainstream use.
* Bitcoin transaction fees are still quite high; for instance, I recently spent nearly $10 on a single Bitcoin transaction.
* This makes Bitcoin uncompetitive with traditional payment methods like Visa or MasterCard, which are free for consumers and even offer rebates. Bitcoin charges the consumer, making it a less attractive option for everyday transactions.
* Fueling FUD: This "over-adoption" without readiness can lead to disillusionment and fuel "FUD" campaigns (Fear, Uncertainty, Doubt) against cryptocurrencies, as people discover the practical limitations.
* Future Solutions and Timelines:
* Solutions like the Lightning Network (post-SegWit activation) and improved wallet technologies (e.g., multi-signature, recoverable paper wallets as discussed by Charlie Lee) are being developed to address issues like high fees and difficult user experience.
* However, these solutions will still take "months to develop" and "one or two years" to become truly usable and widespread.
* No amount of development funding can significantly accelerate these fundamental timelines.
* Overall Impact:
* This pullback might actually be a positive development, helping to reduce "hype investment" and instead attract more "level-minded" investors who focus on the technology's long-term potential.
* While crypto is incredibly useful in specific situations (like Venezuela's hyperinflation), it's not yet ready for mass adoption in major developed countries.
* I believe cryptocurrencies will be "crazily good" in "two or three years" once these core issues are addressed.
Transcript
What's up everyone, today I want to weigh in on why cryptocurrencies are dropping. So recently over the past few days, cryptocurrencies seems to be on a total freefall, a carnage, in where every single cryptocurrency was dropping kind of non-stop for a while. For example, Ethereum dropped from almost 300 to below 200, and Bitcoin is also dropping to around 2300 to 2200 region. So there's a lot of kind of speculation here because there's no real news or real announcements in the cryptocurrency w...