Why the market correction
Welcome back crypto enthusiasts, to the weekly instalments of the latest news, topics and worldwide updates from Magnet Capital.
This week’s hot topic - Why the market correction?
This last week has been an incredibly turbulent time for the entire crypto asset market. However, this is not uncommon - a downward pattern for the start of the year, mainly mid-January to start of February has been seen every year since 2015. This has been accentuated by five other factors:
Korea Exchanges - An inquiry into the Korean exchanges has been launched by the Justice Minister to clamp down on tax evasion and to better control the flow of capital within the country. He raised concerns about tax evasion which have been occurring as a result of anonymous trading, driven by loose anti-money laundering and know-your-customer controls. As it stands the Korean government emphasized there will be no cryptocurrency trading ban in the near future. There will however, be a crackdown on anonymous cryptocurrency trading accounts, market manipulation, money laundering and fraudulent transactions.
The intention is to have registered organisations brokering cryptocurrencies or providing liquidity through exchanges. Organisations which have gone to the appropriate measures to ensure AML and KYC checks are in line with regulatory requirements. Stricter regulatory measures will be put in place by a government task force instead of the Justice Minister proposal to ban cryptocurrency trading.
This has not been received well by the Korean public, with 200,000 signatures collected the opposing the ban, and 30,000 called the Justice Ministers resignation. Whilst regulation is required in order to increase visibility for governments and protect investors, governments need to be cautious in their approach.
BitConnect - Much like Amway and Herbalife, the Multi-level marketing company BitConnect got served multiple cease and desists from North Carolina and Texas State Departments, causing the proclaimed Ponzi scheme to collapse rapidly losing 95% of its value in an hour. It shut down the support channels on reddit at the same time, prompting mass panic by its investors.
This was a long time coming, and easy to spot - a simple Google search brings multiple articles and comments from highly-respected members of the crypto community calling the structure a pyramid scheme. The only way to win was by recruiting more people beneath you.
Rumours of Chinese mining regulation - There are rumours out of China that crypto asset miners may not receive electricity concessions as they have in the past, this would increase their cost base and potentially result in some closing operations. In the short term this could lead to a delay in the network speed until the mining difficulty re-adjusts to be suited to a smaller amount of hashing power (power required to propagate the network and approve transactions).
Exchanges open the doors slowly - As Kraken, Coinbase, GDAX, Bitfinex and Binance start to open the doors to new accounts, Poloniex and Bittrex are still closed. New account verification, deposits and withdrawals are still sluggish as a backlog of activity is still built up. Expect new accounts to be limited in how much they can trade and deposit on a daily basis.
Indian banks suspend crypto exchange accounts - How to appropriately tax the entire crypto asset space remains a significant blocker to government wide adoption and acceptance. Indian Banks, State Bank of India, Axis Bank, HDFC Bank, ICICI Bank, and Yes Bank cited suspicious payments in their decisions to suspend user accounts. Cash deposits are limited, with an unknown timeframe as to whether these accounts will remain limited up until a tax decision has been made.
Magnet’s Take - Although 30% market fluctuations are nothing new to us, there is still an air of caution we need to take, making sure the fund is not exposed in weak positions. Currently, we are in a very good place, should the market continue to decline we will adjust our positions accordingly. Starting this journey, we always said the road was going to be rocky, we remain bullish on blockchain, future applications and adoption. Our major investments have strong teams, clear leadership and multiple paths to success. We’re conscious not to fall into the trap of panic selling. 2018 is gearing up to be a record breaker with global adoption, media coverage, excitement, innovation and opportunities for new businesses. We’re still only at 1% of adoption.
FCFL - The First Fan Controlled Pro Sports League, FCFL allows you to as the token holder to make plays in real time, draft players, hire/fire coaches for a real football franchise (not robots). This is the beginning of true fan engagement, infusing video games and fantasy football with live sports matches. Watch the video here.
SIRIN - A cryptography consumer electronics company launches! Blockchain Mobile phones, Desktop computers and an operating systems currently in late stage development, boasting secure P2P sharing, built-in ‘cold-storage’ crypto wallets as well as all the standard features you would find on these devices. Phone starting at US$999 and Desktop $799.
Alibaba has recently launched a crypto asset mining platform, ‘P2P nodes’. How it will operate has not been officially announced, but speculation is that it will loan out the vacant capacity in its cloud computing facilities for clients to mine crypto assets.
The National Research Council of Canada is piloting the Ethereum blockchain as a means to record government contracts. The initiative is being undertaken to increase transparency of government grants and contributions by publishing them on the open-source blockchain.
- Ledger, a crypto hardware wallet producer, has raised $75m in Series B funding. Ledger has had trouble meeting community demand for hardware wallets and plans to use the additional cash to expand operations.
As mentioned in our weekly hot topic, there have been a lot of factors that have lead to poor sentiment over the last two weeks. The combination of a few bad global events (and sometimes oversold media) in a short period of time have seen the majority of the market dip approximately 20% over the last week.