Cryptocurrencies Tank As Panic Starts To Set In

As concerns rise that entrepreneurs are cashing out their initial coin offerings and that some digital tokens including Bitcoin may have become overvalued, nearly all of the largest cryptocurrencies fell.

In Monday trading Bitcoin declined 6.2% at one point, hitting $5,887, its lowest level since June before recovering some of the loss while Ether dipped 13%, according to Bloomberg, citing data from Coinmarketcap.com. Of the largest 100 cryptocurrencies tracked by Coinmarketcap.com, only one traded higher. The market capitalization of the digital tokens combined declined to $193 billion, a far cry from the $835 billion back in January, noted Bloomberg. (See more: Crypto Market Caps Plummet on Bitcoin ETF Woes.)

While cryptocurrency investors have been here before, this time around there are little signs that the sell-off in August will let up any time soon. Part of that has to do with cryptocurrencies' lofty valuations, Samson Mow, chief strategy officer at Blockstream Corp., a blockchain company, said in an interview with Bloomberg . He said they have been overvalued for a long time and while it's hard to pin the declines on one thing it does appear to be the opposite of last year when fear of missing out drove scores of investors into the crypto marketplace. “Now it’s piling out as they sense panic,” said Mow.

July Rally Didn't Hold Up

The declines in August come on the heels of a rally in July as investors bet a bitcoin exchange-traded fund would receive regulatory approval in the U.S. But regulators in the U.S. withheld approval for the Bitcoin ETF. Many investors view Bitcoin and cryptocurrency ETFs as a way to bring legitimacy to a market that is anonymous and unregulated. Investment firm VanEck and Solid X, a financial service company, partnered earlier in the year to get approval for a bitcoin ETF, but these efforts were rejected by the SEC. The SEC decided to delay making a decision until Sept. 30.

Bulls were also betting than a SEC would help sustain the rally in cryptocurrencies seen in July. Despite crypto bulls' optimism, many regulators around the globe have been carefully scrutinizing the digital token market. In denying the application to launch ETFs in the past, the SEC has cited the potential for fraud and the lack of investor protections. (See also: NYSE Parent ICE to Roll Out Crypto Exchange.)

ICO Cash-Outs Add To Malaise

At the same time, there are fears mounting that entrepreneurs who raised money via ICOs are starting to cash out selling digital tokens such as Ether, which drove the price of that token down. With digital tokens declining in value companies holding on to the proceeds from an ICO are losing value and thus are gearing up to cash out.

Currently, Ether accounts for about 14% of the cryptocurrency market capitalization which is down from 32% last year at the peak of Ether’s rally. Bitcoin’s market cap was 39% back then and now stands at 54%. Bitcoin is declining at less of a rate than the rival digital tokens, noted Bloomberg.  Ether is down around 40% so far in August compared to a 26% decline in Bitcoin.

Investing in cryptocurrencies and other Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein.
 

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