Correction 2018 is reflective of the cryptocurrency market, not cryptocurrency tech

The past few days have seen Bitcoin’s price drop by about 30% to under $10000 and the overall cryptocurrency market cap drop nearly 50% to under $500 billion.There are a few reasons for this:

1. Bitconnect, a large coin collapsed, losing approximately 90% of its value. Accusations of it being a Ponzi scheme grew louder as investors were unable to sell their coins and suffered huge losses. This obviously reflects poorly on Bitconnect, but raises suspicion for all altcoins. Without regulation and standards, what is stopping other altcoins from packing up shop and heading home with investor money? The specter of ICOs being front for businesses with questionable aspirations and even more questionable means of reaching those aspirations has officially been exposed.
2. The crypto market remains largely unregulated and is prone to manipulation. The recent introduction of futures trading has made the market even more susceptible to manipulation from a relatively small number of players. The influx of sophisticated investors, some of whom are backed by institutional money, means that price deviations and swings are more likely to occur in the crypto space.
3. Countries like South Korea and China, major players in the crypto space, have continued to signal their desire to regulate and limit the crypto trade, forcing investors to pull back. There have been whispers of the United States instituting regulations of its own and introducing them internationally.
4. Cryptos have grows tremendously over the last year and many investors decided to take profits. If you invested in Bitcoin one year ago and sold at $13000, you’d have made close to 1500%.

While the above reasons are serious and still need to play out, they are not issues fundamental to cryptocurrencies but rather fundamental to the market. This is an important distinction. What I mean is that none of the above change my long-term outlook on cryptocurrencies.

• I still believe that Bitcoin/Ethereum/Litecoin/some others have great promise moving forward. I also believe that many altcoins today are 100% speculative and will be valueless in <5 years. This is not so different from the dot com bubble. For every Amazon that emerged, 100 Pets.com collapsed. Many ICOs are capitalizing on the hype surrounding cryptocurrencies by pushing false premises with inexperienced teams and poor plans for execution. Unfortunately, investors in these companies will be burned.
• I still believe that blockchain technology will be a formative technology both within cryptocurrencies as well as in other industries.
• I still believe that the more people get involved in cryptocurrencies, the less likely it will be to be manipulated. While outright regulation will have direct effects in curbing some manipulation, organic regulation by the market will eventually be more effective.
• I still believe that countries will have to come to grips with this new asset class and determine their relationships with it. They will find it nearly impossible to outright ban cryptocurrencies in the same way that the internet cannot be fully banned. Cryptos are even more decentralized than the internet and will be even more difficult to stifle.
• I still believe that cryptocurrencies represent a good store of wealth that is not contingent on the same political levers as other investments and therefore represent a good vehicle for portfolio diversification.
• I still believe that corrections in the market are a good thing and that only fake markets with fake products go up endlessly. It’s a good thing that there is liquidity and that people can take money out so that others can get in at reasonable levels. This will ultimately allow the market to rebound and adds another layer of support for the future.

While corrections are painful, they should not dissuade prospective investors or current investors. Current investors should be encouraged by the fact that many cryptos are still above where they were 1 month ago and that the lack of a total collapse implies market strength and asset value. Prospective investors should be encouraged because although some value has been lost, the asset class as a whole has still grown by leaps and bounds over the last year and continues to mature.I don’t like it when my investments decrease in price, but I do appreciate the fact that they are still around after a sell off, that the community remains robust, and that the market as a whole is learning and improving.