A widely-followed economist says suppressing bitcoin price can kill the cryptocurrency. Research supports this assessment as retail traders still dominate the market share. The strong correlation between bitcoin and Google searches point to the vulnerability of retail traders to price manipulation. Alex Kruger, an economist…
Alex Kruger, an economist and trader, took to Twitter to share his thoughts on how anyone can eliminate bitcoin for good. While tech specialists might invest a ton of cash to control 51% of the network, Mr. Kruger says that one does not need to go through that process. The economist claims that any government can kill bitcoin by keeping the price below $1,000.
Mr. Kruger is right on the money. If a government can suppress the price of the dominant cryptocurrency, people will eventually lose interest. That could spell the end of an asset that relies heavily on retail investor interest to keep its head above water. Over time, price suppression will suck the passion out of the most die-hard bitcoin supporters.
In July, a CoinShares research report noted that bitcoin’s rally from the $3,000 levels to $13,880 this year is different from the 2017 bull run. One defining quality of this year’s ascent is that the rally was likely driven by institutional money.
The entry of big players is certainly an encouraging development. However, retail investors still dominate bitcoin’s market share. CryptoFundResearch revealed that there are approximately 804 cryptocurrency funds. These funds account for $18.16 billion of the cryptocurrency’s market capitalization.
At press time, the total market cap of all cryptocurrencies stand at over $222 billion. Bitcoin represents $146.9 billion of that total. Therefore, even if the portfolio of institutions is comprised of bitcoin, $18.16 billion accounts for only 12.4% of the cryptocurrency’s market cap. If you consider that institutions are also buying altcoins such as Ethereum, it is possible that the institutional share is around 6%.
Therefore, retail investors are still keeping bitcoin buoyed. Unfortunately, retail HODLers are vulnerable to price manipulation. If a government eliminates hope from the equation, retailers are very likely to capitulate.
Many crypto enthusiasts are aware that the price of bitcoin is correlated with Google searches for terms related to the asset. What’s astounding, however, is the level of correlation between the two variables. A new study revealed that bitcoin price is correlated by a whopping 80.8% to bitcoin-related searches.
The correlation is a strong indication that retail traders are highly susceptible to price swings. Should a government suppress the price of bitcoin, interest for the cryptocurrency would likely drop. A drop in interest would probably result in lower prices, making it easier for the government to keep the downward spiral going.
The key for the government to successfully kill bitcoin is time. Alex Kruger talked to CCN about the issue and said,
Price would need to be depressed for a long time though. Time [is] more important than price.
That’s true because even if an entity shakes out almost all retail traders, the hardcore bitcoiners and the HODLers will likely dig in. They will probably fight until the bitter end but their numbers would dwindle over time. Eventually, the number of bitcoin HODLers will reach a point that their existence would not matter.
Fortunately, it seems that governments are more interested in regulating bitcoin than destroying it.
Disclaimer: The above should not be considered trading advice from CCN. The writer owns bitcoin and other cryptocurrencies. He holds investment positions in the coins but does not engage in short-term or day-trading.
This article was edited by Sam Bourgi.
Last modified: January 10, 2020 2:49 PM UTC