Bitcoin was struggling to stay at $4,000 this week and is currently trading around $3,800 as negative news has been hitting crypto growth hard. Consequently, all other currencies are also experiencing major downtrends, with ETH trading around $260 and Litecoin falling to $59. Is this going to be a major correction? Are regulations going to kill the crypto market? Let’s take a look.

The last year and a half has seen cryptocurrencies shoot up to unprecedented highs with the total market cap reaching almost $180 billion. Gains have been exceedingly aggressive with currencies like Ethereum seeing 40x rises.

Overall, the market has grown more than 900% in the last 18 months – which is great if you’re an early investor, but it has also led many to term it a bubble waiting to burst.

In order to understand the dynamics in play here, we need to first comprehend the hype behind crypto and the current state of the market.

The Hype Around Crytpocurrencies and Blockchain

While Bitcoin was ‘invented’ in 2008, the main reason behind all the hype is blockchain technology, which promises immutable, trustless transactions in a decentralized network.

What that essentially means is that with blockchain technology, we now have a system where no single entity – be it a corporate organization like Amazon or Google, or a central bank gets to have full control.

Traditionally, we have had to trust middlemen to execute our transactions, whether it is money or data. We trust companies like Paypal, Flippa, Google, Amazon and banks to ensure that our dealings are properly recorded, upheld and enforced when needed.

What blockchain does is that it creates a large network where each transaction is recorded by multiple nodes and is publicly verifiable. No one individual can override the system or change data on the chain without consensus. It is out there for all to see at any time and any place. This eliminates single point of failures as well as the need for central oversight.

Waves of Growth

Blockchain is an exciting technology with far reaching applications in financial and data management industries. As we begin to realize this, startups have been rushing to capture market share and lead from the front.

The first wave of this hype included developers and cryptographers who saw the potential in wide-scale use of blockchain technology.

Bitcoin took the role of money transactions and then the second wave came with tech-enthusiasts who wanted to push the agenda of anonymous transactions and a free, decentralized economy.

Lately, the financial sector has started taking interest in blockchain tech, leading the third wave and bringing the recent boom we experienced.

Now we’re looking at projects like decentralized app stores – LISK, decentralized cloud storage – Storj and Siacoin, trustless smart contracts – Ethereum, quick, low-fee finanacial transactions – Litecoin and so on.

Startups are now aiming to bring blockchain to other fields such as real estate, land records, government auctions, decentralizing web hosting, peer-to-peer ticket sales and the list goes on.

The potential is truly remarkable and the sky is the limit for ideas and creativity – and therein lies a big problem – speculative trading.

The Current State of the Crypto Market

The crypto market is unlike any other financial market we have seen so far – it is unregulated, it has no rules and market cap fluctuations can easily be in billions of dollars.

Most of the trading activity takes places on a handful of big exchanges around the world and few of them have been know to follow regulations.

Investors with large capitals can easily move low cap coin markets with a few hundred thousand dollars and we regularly see what are known as pumps and dumps – where a group of people create false demand to raise prices and then sell on unsuspecting buyers who enter the market following the spike.

In reality, since crypto is in its formational stages, almost all trading is speculative in nature – one bad news, or even a rumor about an upcoming bad news can drop prices significantly.

Most of the cryptocurrencies and tokens in the market are actually under development – there are few solid use-cases and investors are simply throwing money based on future predictions and expectations.

This scenario is very similar to Tulipmania – the first major financial bubble, going back to the 17th century, which left many people bankrupt when it burst.

In early 2000s we also witnessed the dotcom bubble, which followed a similar speculative investment pattern.

The truth is, a lot, if not most of the cryptocurrencies in the market today are going to fail in the future.

There is nothing shocking about this – businesses and startups fail all the time – but this time the “expectations” are higher than ever and gains like 40x seem very lucrative to many.

Given all this, there is no doubt that a lot of people are going to lose money as we go ahead. In fact, a lot of people have already lost money in the recent ICO surge because they invested without proper research due to fear of missing out.

This state of the market is actually a big hindrance to growth as we move forward. Up till now we mainly have the core community and enthusiasts on board.

The financial sector is still looking into the technology and casual investors are wary of committing large capital because of the market’s volatility. If the market is to grow further, these issues will need to be resolved – the question is, how?

Regulations May Not Be That Bad

Crypto is all about decentralization and freedom, but there is a case for some regulations as well.

The landscape is changing fast and governments are looking into adopting blockchain technology. Developments like these will not only build trust but will help the crypto market grow as new investor pools open up.

However, this will only be possible if the market attains a certain level of stability. The huge spikes and dips, most of which are manufactured by large investors and influenced by rumors, will need to be controlled so that people can start considering crypto as a stable store of money.

China banned ICOs earlier, and while some legit offerings suffered from the move, if the country comes back with a regulatory framework, many scams can be avoided in the future.

Similarly, the U.S Securities and Exchange Commission issued a notice earlier this year warning ICOs that operate like securities. This was a good move in my opinion as ICOs since then have become more diligent about legal frameworks, offerings and operations.

Recently the Russian Finance Minister, Anton Siluanov, also shared that Russia intends to regulate cryptocurrencies – a shift from the Ministry’s earlier stance to outlaw cryptos.

All these developments can also be seen as signs that governments and financial institutions around the world are now realizing the benefits of adopting blockchain technology. However, there is no chance of them jumping in without some level of control – and that may not be so bad.

There is no doubt that this is the future, and we should all remember that the purpose of the technology is practical usability. There is no intrinsic value in speculation, but there is value in utility, and once that value begins to be realized and regulated, the market will become a lot more stable and mature. Growth will automatically follow.