Misplaced Fear: Cryptocurrency Market Hits One-Year Low as Bitcoin Dominance Grows

The SEC’s decision to postpone a ruling on a keenly awaited bitcoin ETF has ignited a massive selloff in crypto assets, a sign that bad news continues to run at a premium for a market still searching for acceptance in mainstream circles.

Crypto Market Plummets

Cryptocurrencies shed $30 billion overnight to reach their lowest level in a year, according to the latest data provided by CoinMarketCap. Total coin values reached a low of $227.8 billion, surpassing the June low of around $234 billion. Trade volumes spiked 20% over the past 24 hours as traders liquidated their holdings of bitcoin and altcoins.

A bird’s eye view of the selloff shows that roughly 57% of the decline in market cap was concentrated in altcoins and tokens. Excluding bitcoin, total coin values are worth just over $117 billion.

After a nearly 9% collapse, bitcoin’s total market capitalization was worth $112 billion. Twenty-four hours ago, the BTC market was valued at $122 billion.

Bitcoin’s dominance index climbed to 49% on Wednesday, the highest since Dec. 19. This basically means that 49% of the entire cryptocurrency market capitalization is held in bitcoin.

Bitcoin’s share of the total market has increased substantially over the past three months as investors cut ties to riskier, and less proven, altcoins. Since May 8, bitcoin’s share of the overall market has increased by 13 percentage points. By comparison, Ethereum’s market share has remained steady while bitcoin cash, Ripple and Litecoin have declined.

Tokens and altcoins outside the top-ten have seen their market share fall from 26% to 19.6% over the last three months

Misplaced Fear

Crypto’s precipitous drop appears directly linked to the SEC’s decision to postpone its ruling on the VanEck SolidX Bitcoin ETF. Investors are reminded that the agency has not rejected the application but simply postponed its decision until at least Sept. 30 to go through 1,300 comments that were submitted during the public consultation. With that in mind, the selloff is clearly an overreaction by investors who have placed too much emphasis on the prospect of a bitcoin ETF. It also suggests that much of the July rally was indeed driven by ETF optimism, something Hacked acknowledged on multiple occasions.

Former Goldman Sachs executive Ali Hassan told CNBC last week that a bitcoin ETF is coming but could take up to 18 months to materialize. Although this reflects only one opinion, Hassan’s timeline is realistic in light of the SEC’s gradual shift on cryptocurrency.

Although the agency recently deemed bitcoin and Ethereum to be non-securities, regulators aren’t convinced that crypto-backed funds are “uniquely resistant to manipulation.” It’ll take time and new innovations in securitization to quell those fears.

In the meantime, market participants are vastly discounting last week’s announcement by New York Stock Exchange (NYSE) operator Intercontinental Exchange (ICE), which is starting a new crypto venture with Microsoft, Starbucks, Boston Consulting Group and others. Dubbed Bakkt, the new company will hold and manage investors’ cryptocurrency as well as integrate bitcoin payments through mobile apps.

In the author’s view, Bakkt is a far more bullish development than the acceptance of a bitcoin ETF. This watershed moment has yet to be reflected in the bitcoin price, partly because Bakkt is pending regulatory approval. Bakkt’s scheduled launch in November could signify a major turning point for investors looking for more tangible developments around crypto custody and mainstream acceptance of bitcoin payments.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Chief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi