Cryptoassets have lost a trillion dollars worth of market capitalization from their all-time highs earlier this year, according to Autonomous Research. “The crypto markets are not holding their value in an overall downturn, and have been fairly correlated with traditional equities as everything nosedives together,” writes Lex Sokolin, Global Director of Fintech Strategy at the firm.
After mostly moving sideways in October, cryptocurrency markets crashed in tandem with equities last month. The fall wiped approximately $75 billion from their overall market value. Increased crackdown from the SEC on suspicious projects and regulatory uncertainty ensured that the market for initial coin offerings (ICO) plunged concurrently. Startups raised their lowest monthly total from ICOs during the month of November, down by more than 90 percent from their February highs. September was no better.
According to Sokolin the availability of instruments to short cryptocurrencies is a “meaningful driver” of the market’s downturn. Available data shows that bitcoin shorts reached their highest level this year in November. Ethereum, another cryptocurrency which is under siege from traders, has also witnessed record numbers of shorting positions this past month. The effect of short positions on cryptocurrency markets is expected to intensify in the coming months as new futures trading platforms, such as ICE-funded Bakkt and Nasdaq-backed ErisX, are launched.
The run up in cryptocurrency prices last year also witnessed an influx of new funds eager to capitalize on a bull market. But this year’s bloodbath has paused the flow. There was a steep 41% drop in the number of funds launched in cryptocurrency markets this year, according to Autonomous Research and adds that their performance profile is down by 80% this year.
But new funding could unlock more value in the blockchain and cryptoasset ecosystem. Autonomous Research estimated that investors poured $700 million in the form of funding for various blockchain- and token-related projects. The amount was roughly split 50% between investments in platform tokens and venture capital investments in companies developing products for the space.
Even as new companies boost headcount, existing players are becoming leaner.
The firm has forecast a steep decline of between 25% to 50% in employees for blockchain companies for 2018. “That doesn’t mean there can’t be new companies with new opportunities ahead – it just means their journey will be more rational, and potentially more fruitful,” the firm stated.