Bitcoin prices tanked by nearly 15% over trading on Wednesday, September 6, sinking from nearly $7,400 to below $6,400. The popular cryptocurrency was not the only one hit, though, as the trend was mirrored by other cryptocurrencies and tokens as well. The sharp sell-off across the nascent industry can likely be attributed to two developments: Goldman Sachs’ apparent decision to delay its plans to open a cryptocurrency trading desk, and concerns about popular trading platform ShapeShift now requiring all users to update their personal data.
As both of these factors could result in weaker-than-expected cryptocurrency trading activity in the near future, it lends support to our view that Bitcoin prices aren’t likely to breach the $10,000-level again this year – something we detail in our interactive Bitcoin Price Estimator. The graphic below captures our base case forecast for the monthly average price of Bitcoin this year based on our estimates for transaction volume and number of Bitcoin users, and also shows a possible price range for the cryptocurrency taking into account a relatively bullish and bearish outlook for the rest of the year.
Why Goldman’s Decision To Delay Cryptocurrency Trading Matters
One of the primary factors that has been driving the price of the Bitcoin over recent months is the idea that the traditional financial industry is beginning to warm up to cryptocurrencies. Goldman Sachs piqued the interest of investors globally when it became the first investment bank to announce plans for a cryptocurrency trading desk early this year. While most banks remain cautious of cryptocurrencies, several of them were expected to follow Goldman into the nascent industry. As this would mean substantial growth in the market thanks to the huge base of institutional investors with whom they work, the expectation buoyed Bitcoin prices.
But with Goldman putting its plans to launch a cryptocurrency trading desk on ice, the disappointment among Bitcoin investors is understandable. While Goldman doesn’t seem to have canceled its plans for a crypto trading desk altogether, the delay indicates that it will be at least several more months (if not years) before investment banks actively participate in this industry.
Why The Registration Model Adopted By ShapeShift Matters
ShapeShift is a popular platform that allows users to trade and also swap between several cryptocurrencies and tokens. Recently, the company decided to implement a membership model – requiring users to provide basic personal information for continued use of the platform. Although ShapeShift claims the change is needed to enable its multi-tiered loyalty program, the move is also clearly aimed at the evolving regulatory environment which has raised concerns about the ease of using cryptocurrencies for money laundering and other illicit purposes.
While the addition of basic personal information is a good step towards preventing financial malpractice on the platform, ShapeShift’s decision hurts a number of users who use cryptocurrencies primarily because of the anonymity they offer. More importantly, it is likely that other platforms may implement similar measures in the near future – limiting choices for anonymous users and potentially reducing activity levels.
Understanding How This Really Affects Bitcoin Prices
As both the announcements detailed above will weigh on the number of active users as well as their transaction volume over coming months, they should have a material impact on the price of a Bitcoin.
So Is There Still Any Upside Left To The Bitcoin?
While Goldman is not going to set up its cryptocurrency trading desk anytime soon, the bank is still looking to act as a custodian in the cryptocurrency industry – helping large institutional investors manage their investments in cryptocurrencies. So it might be too early to write off the bank and its potential impact on the industry just yet. Also, ShapeShift’s move is actually good news for the overall industry over the long run, as it could go a long way in alleviating regulatory concerns about its use for illegal purposes (assuming other platforms follow suit). This could, in turn, pave the way for more crucial changes in the industry, such as the approval and launch of Bitcoin ETFs in the future.