The total value of all cryptocurrency in circulation today is approximately $200 billion. Not only is this small compared to where it was at the start of this year (circa $800 billion), but just a small drop in the ocean compared to some traditional fiat currencies. For example, the dollar reportedly has over $10 trillion worth of paper bills and coins in circulation, which itself is just a tiny fraction of all transactions done with the currency.
The value of regular fiat currencies is based on many factors such as the economy of the home nation, governmental policies, and even the growth and fall of its major corporations. Because cryptocurrencies do not have government and the economies of nations behind them their value is largely based on supply and demand. If people want it, the value goes up, if they don’t want it, they sell it and its value falls. It is this buying and selling, often in high volumes that causes the big jumps and falls in crypto prices.
The Big Whales
One of the major issues with cryptocurrencies at the moment is price manipulation by the big whales. These are those who own not just huge quantities of cryptocurrencies, but also vast sums of cash. They are able to manipulate the market in two main ways.
Firstly they can reduce prices by creating something called a “sell wall”. This is when they place a large amount of a crypto for sale for a lower than the market price. This forces other sellers to also lower their selling price. Some whales may lower their selling order multiple times, causing a currency to lower in value hugely. Which then allows the whale to buy more of the currency at a lower price, without even selling their own stock.
Secondly, they can increase prices by doing the opposite of the “sell wall”. They place huge buy orders on the market for higher than market prices. This not only forces other bidders to raise their bids for the currency but can also ignite a fear of missing out in smaller investors who feel the currency may soon be too expensive for them to invest in or that they may miss out on getting a quick profit. However, unlike the sell wall, this requires much more capital and even multiple whales working in tandem to work effectively.
What makes people want something? It is an emotion, an idea, a wish. And where does it come from? It is created by the information people receive and it is this that creates the second major issue for cryptocurrencies at the moment.
Today, whatever your viewpoint on any given issue, be it politics, current affairs, music, film or sport there is a media source or news channel that supports and reinforces your view. It is also very easy for those in more powerful positions to provide false information, ignore certain news stories or label other sources as fake news (we have all got used to Donald Trump and his fake news statements about even very large broadcasters and news agencies). At best this makes finding reliable and honest sources of information very hard. However, when in turn you add the possibility for anybody, anywhere to freely post almost anything they wish online without fact checking or repercussions. Finding those reliable sources of information gets even harder.
Just like the regular news, cryptocurrency news and views are also heavily biased and created to serve a certain purpose, such as promoting a particular coin or encouraging individuals to buy or sell certain coins. Just as with the whales and their huge purchases or sales of coins, the websites, blogs and YouTube channels with high numbers of subscribers can also influence and manipulate the markets for the benefit of certain groups or individuals. This leaves the majority of small investors with very little actual or true knowledge of the crypto markets beyond buying low and selling high. Turning cryptocurrencies into an investment product in which people take out profits and then place them it into other coins in a continued search for higher returns.
For a regular person, they see and hear about the huge swings in the price of cryptocurrencies, but have no understanding of what is behind it or why it is happening. This creates just one thing for most people, and that is fear. To use a currency as it should be used – to buy goods and services – people must know what its value is today, what it will be tomorrow, as well as what it is likely to be in the near future.
When we look at the huge fall in crypto prices this year and compare those to a fiat currency, it would lead to runaway inflation, such as in Venezuela in recent years, or those images at the end of the end of the 90’s where Russian workers were paid with wheelbarrows full of rubles.
Businesses also have the same fear as individuals because they don’t want to buy or sell goods at one price and then sell them for a big loss the next day (although they could also make a bigger profit). This is a risk the businesses don’t want to take.
The biggest issue preventing cryptocurrencies entering the mainstream at the moment isthe fear caused by huge changes in their prices, and this is justified. Crypto is worth just one quarter what it was at the start of the year. If crypto were a nation’s currency, this would have led to runaway inflation and a massive financial crisis. But what is causing this instability in cryptocurrencies?
Because of crypto’s relatively low total value (approximately 200 billion), it is very easy for those with large amounts of the currency (known as whales), to sell or buy large quantities of a currency, changing its price drastically. Another major issue at the moment is information. Too many sources are biased and only serve the purpose of promoting a certain coin or getting people to buy or sell certain coins at certain times.
For crypto to really grow into a trusted currency that regular people use on a daily basis, how it is used and advertised at the moment must change. Huge changes in the price caused by whales or misinformation online must stop along with them being seen as investment products or commodities to buy and sell for profit. Crypto must be used for its original purpose as a currency to buy goods and services.When this happens trust will build, more people will adopt it, and as a consequence, the price will also rise.
Nils Grossberg is an entrepreneur from Tartu, Estonia. Nils Grossberg graduated from the University of Tartu with a bachelor’s degree in History. He is the co-founder and former CEO of Dagcoin OÜ, the software company behind the development of Dagcoin cryptocurrency and its ecosystem.