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Cryptocurrency Market Plumbs New Depths in 2018 (#GotBitcoin)

At $191 billion, the total market value of cryptocurrencies world-wide is at its lowest since November. Cryptocurrency Market Plumbs New Depths in 2018

A broad investor retreat has pushed the market for digital currencies down 70% from its January high, reflecting user frustration over their modest inroads into commerce and a general shakeout in speculative investments.

The value of all cryptocurrencies in circulation this week fell below $200 billion for the first time in 2018, its lowest since November. The selling has been widespread and, some holders say, indiscriminate. Of the top 100 cryptocurrencies by market value, 98 were down over 24 hours, according to research site CoinMarketCap.

Cryptocurrencies are digital tokens that aim to allow users to exchange value online quickly and cheaply, mimicking some qualities of currencies such as the dollar and yen without the physical infrastructure. Proponents have said they will overtake such so-called fiat currencies, but so far few uses have emerged other than trading.

Bitcoin, by far the most widely used digital currency, this week fell below $6,000 for the first time since late June. Ether, the second-most-used coin, dropped 17% over 24 hours, according to CoinDesk.

Over the past two days, “enough people started freaking out” and selling assets that it led others to start selling as well, said Kyle Samani, managing partner at crypto hedge fund Multicoin Capital.

While the intense selling reflects a handful of market and economic factors, many users say plunging cryptocurrency prices point to the apparent failure of bitcoin, ether and other popular units to gain widespread adoption in the economy. Many view such a step as necessary to justify valuations that despite the recent selling remain well above year-ago levels.

Others say there is a growing recognition that prices may never again reach the high levels of January and foresee a rush to sell cryptocurrencies before losses deepen further. Financial products based on bitcoin and other currencies have in some cases failed to gain regulatory approval, and crypto investors have been hit with substantial losses repeatedly this year tied to hacks and other incidents in Asia.

“People are starting to realize that they drove this stuff up in a feeding frenzy, and they’re starting to realize just how dangerous it is,” said Mark Grant, chief global strategist and managing director at B. Riley FBR Inc., who has for months been warning clients against putting money into cryptocurrencies.

In part, the underlying sentiment shift is being driven by the rise of the dollar, amid solid U.S. growth, a series of Federal Reserve rate increases and a pullback from riskier securities issued in emerging markets such as Turkey.

The MSCI World Index, a measure of global stocks, topped out in January and hasn’t been able to reclaim its high since then, while bitcoin prices remain below their December peak.

Bitcoin and the wider market for cryptocurrencies often have been driven far more by so-called momentum trading than fundamentals. In 2017, investors scrambled to wager that crypto was going mainstream.

Products and services were going to emerge from the billions raised in the market for initial coin offerings that would bring in users. Wall Street and “institutional” money then would rush in to get a piece of the pie.

While the outreach to traditional markets continues—the owner of the New York Stock Exchange earlier this month launched a subsidiary to develop a compliant exchange for digital assets—there have been a number of prominent setbacks. A proposed bitcoin exchange-traded fund was in July rejected again by the Securities and Exchange Commission. The amount of institutional money flowing into the sector still appears to be small.

What’s more, there still is virtually nothing holders of bitcoin, ether, or any other cryptocurrency can do besides trade it. They have no practical utility in traditional markets and in daily commerce.

Accordingly, investors are now judging that much of the market—which runs with little oversight from Wall Street regulators—is akin to “gambling,” said Mr. Grant of B. Riley FBR.

Sharp declines are nothing new to users of these currencies. In 2017, bitcoin flipped between what is generally considered a bull or bear market—a rise or drop of 20% of more from a peak or valley—about once a month. In a particularly frenzied 40-hour run in December, it rose 40%. It proceeded to drop 25% in a subsequent 24-hour period.

That said, investors now are confronting a period in which many cryptocurrency projects have had well-publicized problems. The Ethereum network, where ether is used, has been bogged down in development. The EOS network, which was designed as a competitor to Ethereum, had several problems after its launch. For all the excitement over decentralized products and services, only a handful are actually live, and they have few users.

A highly anticipated prediction-markets service called Augur went live on the Ethereum network in July, after three years of development. After an initial burst of activity, it has failed to build any momentum, and the service remains only lightly used.

“Everyone has been searching for the killer app,” said Sherwin Dowlat, a researcher at advisory firm Satis Group. “Augur’s performance has left us waiting for another.”

On another level, though, several people said this selloff was nothing unusual, certainly not for the hypervolatile cryptocurrency market.

“You have a crescendo, euphoria, a crash, and capitulation,” said Mr. Samani of Multicoin Capital, adding this is the fourth time the market has gone through such a pronounced and well-defined cycle. His firm, in fact, had positioned itself for exactly this, despite being a long-biased fund.

“We’re not as sad as you’d expect,” he said.

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