This should be becoming old hat at this point, but around 9 AM EST Bitcoin, and the rest of the market, suffered ANOTHER major drop in value with Bitcoin touching the $30K level before bounding back up to around the $35-36,000 level by the time of this writing. In this respect Bitcoin is doing better than Ethereum and the other alt-coins as these for the most point are down 20%-30% today.

While Elon Musk has received plenty of flak recently for tweets that caused major price drops, in this instance there is a much more substantial force at work when it comes to this most recent crash: China.

Let's focus on China first. Earlier today, Chinese regulators banned financial institutions within the country from providing services related to cryptocurrency. The official line is that the order was put in place to protect investors from the high speculative nature of crypto and the potential of losing their assets, but if we're being honest it it's more likely that this was a step to keep their citizens from moving wealth off shore or keeping it anonymously as the Chinese government pushes their own digital yuan that has the capacity to exert even more control over their populous and possible those outside as well. 

While this isn't the first time Beijing has gone after crypto, the loss of such a large market would easily be enough to push down digital assets across the board. The fact that crypto mining wasn't also included in this order is interesting but not entirely unexpected. It seems the China is willing to have companies profit off of Bitcoin, just so long as the general population gets it's hands on it.

While there are others factors at play at the moment, such as a general rotation away from tech and other growth stocks to less speculative assets, the last few major drops Bitcoin and other platforms have suffered has shown that crypto currently faces a major set of challenges I call VAS: Volatility, Acceptance, and Sentiment.

Volatility should not be a surprise to anyone who has spent time owning and trading crypto, but it's still a major issue when it comes to Bitcoin and other coins being used as an investment asset. Let's take a look at a comparison of Bitcoin's volatility to something it is often compared to; Gold.

Now, I've argued before that the Bitcoin = Digital Gold argument doesn't mesh up properly. While I focused mainly on technical and physical differences there, as we can see above gold is leagues ahead of Bitcoin when it comes to stability. It's hard to become the new "store of value" when your value has shown a consistency to bounce around like an early 2000's Civic with bad shocks. While such movement might get short term traders excited, it hurts the confidence of longer term investors and can drive them away from the entire cryptocurrency asset class. Such a burn of users can lead to pressure against the use of these assets, leading us to the second challenge; Acceptance.

When I talk of Acceptance, I'm referring to both users and organizations accepting crypto as viable payment while in the process of commerce. To be frank, it doesn't really matter how much a website says your coin is worth if you can't BUY anything with it (and buying other cryptos doesn't count). Bitcoin's growth hasn't been just a matter of it's programming, but that you can actually use it to pay for goods and services. Heck, the whole POINT of Bitcoin's existence was for it to be used to allow peer to peer commerce for those who wished to avoid traditional systems.

The problem comes when either the ability to use cryptos in everyday commerce is restricted, for example because of governmental action in places like India, Turkey, and China, or prices and/or transaction fees become so volatile that either users cannot make use of their assets in normal day activities or goods and service providers abandon the platforms because they're no longer worth the trouble. Such problems of acceptance, when tied into high volatility, leads to problems in our final challenge: Sentiment.

While it may seem quite insane that one person's comments could tank an entire asset class, in reality it's not a total surprise when we consider much of crypto's value is based on Sentiment; what those who participate in the markets THINK they're worth and is heavily influenced by emotion.

Save for stablecoins backed by traditional assets like USDC or tokens tied to the income of exchanges/services like KuCoin and NEXO's tokens, your average cryptocurrency doesn't have the physical assets, or profit forecasts, or other fundamentals that traditional investment assets like stocks and bonds do. While these traditional assets can still can face large speculative price pressures, their fundamentals will usually act to dampen these swings in either direction.

With many tokens and coins out there right now, there is little that could be considered "solid" that we can tie it's value to or if there is price speculation absolutely swamps its intrinsic value. When it comes to platforms like Ethereum we can argue that the price of 1 ETH is relative to the value of the processing power it will buy you to run transactions and smart contracts on it's network. This is all well and good, but do we really believe the amount of computing power needed to process a transaction to claim a FARM reward on Harvest Finance is worth over $100 USD?

Sentiment drives crypto right now, for both good and ill, until the market matures and it becomes easier to judge a coin's intrinsic value. Right now we have a lot of new faces in the crypto market (and investing in general if we look at all the new accounts at places like Robinhood), and they're experiencing significant losses for the first time which breeds fear and further panic selling. For the time being if we wish to survive in this market and turn a profit we're going to have to be a bit more active in our strategies. Simply HODLing and waiting for the rocket isn't going to cut it, and in future posts I'll be going over different ways we can make our tokens work for us no matter the direction prices go.

I'd like to hear from you: With just about everything dropping lately, are you focusing on a few favorite projects or are you spreading your capital around looking for that 10X?