{"id":93394,"date":"2018-12-19T11:47:28","date_gmt":"2018-12-19T10:47:28","guid":{"rendered":"https:\/\/www.erasmusmagazine.nl\/en\/?p=93394"},"modified":"2025-12-19T11:23:11","modified_gmt":"2025-12-19T10:23:11","slug":"crypto-in-2018-the-year-of-the-rude-awakening","status":"publish","type":"post","link":"https:\/\/www.erasmusmagazine.nl\/en\/2018\/12\/19\/crypto-in-2018-the-year-of-the-rude-awakening\/","title":{"rendered":"Crypto in 2018: \u2018The year of the rude awakening\u2019"},"content":{"rendered":"

The crypto hype reached its high point exactly a year ago. Ethereum, Bitcoin, Ripple; everybody and their uncle had something to say about it over Christmas dinner. But the bubble burst in 2018. Three scholars and a student investor share their perspective on the causes of the crash and the future of cryptocurrencies.<\/p>\n

\"\"

\n\t\n\n<\/svg>\n<\/span>\n\tImage by:<\/span>\n\n\t\t\t\n\t\t\t\t\t\t\tElzeline Kooy<\/a>\t\t\t\t\t<\/span>\n\t<\/p>\n<\/figcaption><\/figure>

During the crypto bubble glory days \u2013 now exactly one year ago \u2013 Koen\u2019s telephone buzzed incessantly. In a Whatsapp group, he shared portfolio performance and exchanged recommendations with friends on cryptocurrency prices. They were fanatical and there was no end to what Koen and his friends would share regarding their profits. The 23-year-old strategic management master\u2019s student also hit the jackpot. \u201cAt one point I had earned 900% on my initial investment.\u201d<\/p>\n\n\t

\n\t\t
\n\t\t\t
\n\t
\n\t\tAn example: Bitcoin prices have dropped more than eighty percent compared to last year.\n\t<\/blockquote>\n\n\t<\/figure>\n\t\t<\/div>\n\t<\/div>\n

The past year was the polar opposite of 2018, and Koen\u2019s group app illustrates this perfectly. The silence, compared to 2017, is almost uncomfortable. It\u2019s not as much fun to share your losses, he says laughing. An example: Bitcoin prices have dropped more than eighty percent compared to last year, and the same applies for all the major cryptocoins that peaked around the end of December 2017. For Koen, the current status of his portfolio is a private matter, but he does say he wishes he had cashed in during the crypto heyday.<\/p>\n

2018 is the year of the crypto plunge, the \u2018rude awakening\u2019, as Information Management professor Peter Vervest puts it. What caused the crypto crash? And what does this drop in value mean for the future of digital currencies?<\/p>\n

Unregulated Wild West<\/h2>

A cryptocurrency is a digital currency unit that is stored in a blockchain, a series of computers that jointly store encrypted information. The principal digital coin, the Bitcoin, was valued at 17,000 euro in 2017, but its price is now around 3,126 euro. How did the coin drop in value so quickly?<\/p>\n

Various reasons are given. The main reason according to Vervest: \u201cThe investments everyone was making in cryptocurrencies and their runaway expectations were too high and unrealistic. It turned into a hype.\u201d says Vervest. All this happened when the market was still in its infancy. \u201cIt\u2019s an unregulated Wild West. Fortune seekers can also contaminate the market by issuing worthless currency units.\u201d<\/p>\n

Another factor is that trading in digital currencies is even more sensitive to the behaviour of speculators anticipating how others will act, and in doing so, the hype is exacerbated, says Laurens Swinkels, an assistant professor at Erasmus School of Economics. He compared the crypto market to the regular market. \u201cThat\u2019s because it\u2019s hard to determine the value of cryptocoins. With regular shares, you buy shares from a company that generates a measurable output. This is used as a foundation for determining and verifying the value of shares.\u201d<\/p>\n

\u2018A classic bubble\u2019<\/h2>

These ingredients combine to create a classic financial bubble, according to Mary Pieterse-Bloem, an endowed professor in financial markets at Erasmus University and Senior Global Head Fixed Income at ABN-AMRO. \u201cYou can compare it to other bubbles, such as the housing bubble at the start of this millennium. At that time people thought house prices would keep rising. When that happens, more and more people invest in that sector in anticipation of this trend. This then creates a bubble, and the price rises above the actual value.\u201d<\/p>\n

Sooner or later the bubble bursts. In retrospect, Koen (surname withheld upon request, see explanatory note) explains why he thinks the bubble burst: \u201cThere were signs that some governments, like South Korea, and agencies such as the American Securities & Exchange Commission had plans to prohibit cryptocurrencies. And Coincheck, a major Japanese cryptocurrency stock exchange, was hacked to the tune of 530 million dollars. That was a blow to people\u2019s confidence and caused the market to collapse.\u201d In spite of the crash, Koen, who is exploring investment in more depth with the student investment association B&R Beurs, continues to invest in cryptocurrencies.<\/p>\n

\"\"\n\t\t\t\n\t\t\t\t\n\t\t\t<\/svg>\n\t\t<\/button>

\n\t\n\n<\/svg>\n<\/span>\n\tImage by:<\/span>\n\n\t\t\t\n\t\t\t\t\t\t\tElzeline Kooy<\/a>\t\t\t\t\t<\/span>\n\t<\/p>\n<\/figcaption><\/figure>

Rogue investors and money-grubbers<\/h2>

In contrast with the housing market bubble that resulted in the big financial crisis of 2008, the bursting of the crypto bubble has had little effect on the economy. Why is that? \u201cSimply put, the market is much smaller, and so it has less of an impact,\u201d explains Pieterse-Bloem.<\/p>\n

In Vervest\u2019s opinion, the crash was a good thing. \u201cThe wheat has been separated from the chaff. The rogue investors have suffered and you see the money-grubbers retreating with their tails between their legs. People who continue to invest in cryptocoins are the ones who truly believe in the technology. For example, the price of Bitcoin is still three times higher than it was in early 2017. It\u2019s now much more in line with the actual value of the technology behind it.\u201d<\/p>\n\n\t

\n\t\t
\n\t\t\t
\n\t
\n\t\tThe \u2018fools\u2019 who decided to invest at the peak period have lost their money.\n\t<\/blockquote>\n\n\t<\/figure>\n\t\t<\/div>\n\t<\/div>\n

The \u2018fools\u2019 who decided to invest at the peak period have lost their money. \u201cIt evaporated. The sellers at the other end of the deal and currency owners have the upper hand\u201d, says Pieterse-Bloem. \u201cBut I haven\u2019t heard of people having financial problems by buying cryptocurrencies late in the game. Those were people who \u2013 luckily \u2013 could afford to lose the money.\u201d<\/p>\n

Four times more energy than Google<\/h2>

Does this crash mean the end of cryptocurrencies? Pieterse-Bloem: \u201cThat\u2019s difficult to predict. It\u2019s pretty certain that it will never totally disappear, because it\u2019s a useful payment instrument for criminals who value their anonymity.\u201d<\/p>\n

If the coin is to be used as a payment instrument in the regular market, it still has some obstacles to overcome. \u201cAn effective currency has to be reliable, but crypto coins are anything but stable. If you can use it today to buy a car, it\u2019s uncertain whether you\u2019ll be able to buy half a car for the same amount tomorrow.\u201d<\/p>\n

According to Pieterse-Bloem, in order to be able to consider a currency as reliable, you need transparency, regulation and stability. An important factor here is that governments recognise cryptocurrencies as a payment instrument.\u201d And that is where she has her doubts. \u201cIf that should happen, the government relinquishes its influence: with cryptocurrencies in their current form, you can\u2019t regulate and steer the economy.\u201d<\/p>\n

Another problem involves environmental concerns. \u201cYou need an enormous amount of energy to develop cryptocurrencies. At this time, Bitcoin uses four times more energy than all the Google servers in the world combined. That\u2019s 22 terawatt hours per year, and that will grow exponentially if the entire economy uses cryptocoins.\u201d<\/p>\n

\u2018Revolutionary\u2019 and \u2018idealistic\u2019 technology<\/h2>

Vervest emphasises that in spite of the problems, he has confidence in the technology driving cryptocurrencies \u2013 blockchain. \u201cThanks to this technology, we\u2019ll be able to execute transactions without a third party in the future. That\u2019s revolutionary.<\/p>\n

Koen explains how blockchain and Bitcoin works and why it\u2019s important: \u201cEvery computer has a ledger: a copy of all transactions between all addresses. You can look at this as accounts on the blockchain. This kind of information is currently stored at banks.\u201d<\/p>\n

Koen believes blockchain is more secure. \u201cInstead of a single, vulnerable location where account information is stored, copies of all the data are stored in all computers forming part of the chain. If a malicious hacker changes the data of a single computer in the blockchain to appropriate money, that computer is immediately identified by other computers as a provider of incorrect information. The hacker is unable to do what he set out to do. Complete transparency takes trust out of the equation. Furthermore, intermediary third parties aren\u2019t needed to execute a transaction in this type of system. Everything is based on consensus within the blockchain network.\u201d<\/p>\n

There\u2019s also an idealistic side to cryptocurrencies, says Koen, and that\u2019s something he admires. \u201cSatoshi Nakamoto invented Bitcoin based on the idea that things could be done without bankers, especially after the bank crisis of 2008. He saw bankers as the culprits responsible for the crisis.\u201d Will his telephone be buzzing like it did in 2017? It\u2019s too soon to tell, but he expects it will. And personally, this appeals to him, even if it\u2019s only because of the idealism behind it.<\/p>\n\t

\n\t\t

Koen elected not to disclose his surname in this article. In an email he wrote: \u201cThese kinds of articles could influence an employer\u2019s perception of me if they look me up, so that\u2019s a no reward\/high risk choice.\u201d<\/em><\/p>\n\n\t<\/div>\n\n\t\n\t

\n\t\t\t\t\t

De redactie<\/h2>\n\t\t\n\t\t
\n\n\t\t\t\n\t\t\t