Bitcoin has lost 18.45% this week showing a shaky market oversensitive to government regulation

Price movements

Bitcoin started out the week at a promising US$17,468.90 on 06 January 2018 after a week where the regulatory environment soured a little, causing the price of bitcoin to retreat significantly to close out the week at US$14,237.70 as at time of writing 13 January 2018.

On 12 January there were reports initially claiming that the South Korean government would be banning cryptocurrency exchanges outright. The South Korean government has since clarified its position stating that a blanket ban is not their intention but that additional regulation for exchanges will be forthcoming.

Market Capitalisation

The week for bitcoin’s market capitalisation has been equally as challenging, beginning the week as high as US$293.2 billion to stand at US$239.1 billion representing nearly a one fifth loss of market cap down 18.45%.

Be reminded that these numbers are the numbers of the market leading cryptocurrency. Interestingly, bitcoin’s total market dominance only dipped by 4.53% as a measure of its wealth against all other cryptocurrencies in the market.

This is a significant number because in only one month the market dominance of bitcoin has fallen 25% from 58.58% to the all time low of 32.6%. What this says is that the huge ground bitcoin is losing has slowed over this week a little. Whether that is enough to forecast a resurgence in market dominance of bitcoin is uncertain.

24 Hour trading volume

In sync with losing market dominance, bitcoin has also lost a lot of ground in 24 hour trading volume. At the outset of the week bitcoin had a robust trading volume of US$23.5 billion. After a brief week high in 24 hour trade volume of US$24.5 billion that value plummeted, halving by the end of the week to now be hovering at about US12.54 billion worth 24 hour trade across most major markets.

Looking forward

The regulatory environment for bitcoin trading seems to trend towards greater government regulation. For example this week the United States (US) Senate moved to criminalise non-disclosure of bitcoin assets which is in the broader context of applying stricter regulations on US cryptocurrency exchanges to conform with know your customer and anti-money laundering policies.

These regulatory changes will continue to affect the price of bitcoin negatively. The difficult factor to gauge will be market entrant numbers. That is to say how many potential investors will be scared away by increasingly strict government policies. This is important because most people entering the market usually start by purchasing bitcoin.

Available data shows 920,000 active bitcoin wallet addresses. That figure is up 25% from one month ago and is a 79.33% increase from this time a year ago. What that information can tell is there could be more market entrants. If this number continues to increase going forward downwards pressure on bitcoin’s price will settle once a regulatory framework has been established.

This information should not be interpreted as an endorsement of cryptocurrencies or a recommendation to invest. Historic performance is no guarantee of future returns. As an investment class, cryptocurrencies are speculative investments and investing in cryptocurrencies involves significant risks – they are highly volatile, vulnerable to hacking and capital loss and sensitive to secondary activity. Before investing you should obtain advice and decide whether the potential return outweighs the risks.

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