The overall value of the world’s most important digital currencies nose-dived over the weekend as developers and exchanges struggled with key questions related to transaction capacity, merchant acceptance, and other market dynamics.
The 11 largest currencies by market capitalization lost 18% of their total value between midnight Friday and early Sunday, only to rally somewhat during the day Sunday to finish down 12%, according to an index calculated by Smith and Crown, a New York City-based research firm. Its index stood at 4,253 Sunday evening, down 26% over the past week.
Bitcoin, the largest of the 11, has taken a particularly hard fall after weeks of dwindling value. Trading briefly at just over $3,000 as recently as June 11, the currency entered the weekend at $2,113 and by late afternoon Sunday traded at $1,871, according to Smith and Crown. All told, Bitcoin shed $1.8 billion in market cap between midnight Friday and Sunday afternoon and has seen that measure shrink 21% in the past 30 days to $31.6 billion.
Ethereum, the second biggest blockchain by market cap, has fared little better. Its digital currency, ether, dropped by more than 7% just in the 24 hours leading up to Sunday afternoon, when it traded at $157. It traded at just over $300 as recently as June 30 but has slid since.
Ether has proven to be quite volatile in part because of the popularity of so-called initial coin offerings, which allow startups on the Ethereum blockchain to raise financing through the sale of ether tokens to investors. Backers cashing in on those tokens have helped drive ether’s descent, observers say.
At the same time, Bitcoin enthusiasts are struggling to resolve a long-running issue that’s cramping capacity on the network as volume grows, slowing transactions and driving up transaction costs.
As a debate over competing technical fixes heads into its home stretch, a related issue over merchant acceptance has emerged. A report released last week by Morgan Stanley argues Bitcoin’s value, coupled with soaring fees, have made merchants reluctant to accept the currency, while some that were taking it have dropped it.
While five of the top 500 Web-based retailers, as ranked by Internet Retailermagazine, accepted Bitcoin a year ago, just three do now, says the report, written by equity analyst James Faucette. “Bitcoin acceptance is virtually zero and shrinking,” Faucette says in the report. Besides Internet retailers, a number of small physical merchants take Bitcoin, as does the Subway sandwich chain.
But the Bitcoin blockchain’s capacity crunch has slowed confirmation times for transactions, leaving buyers and sellers uncertain that sales have cleared and allowing Bitcoin miners to charge higher fees to process transactions sooner. While users rather than merchants are responsible for these fees, merchants are affected as fewer users step up to pay them, particularly for small-ticket goods.
The value issue is related to what had been a rapid run up in Bitcoin’s price earlier this year. That made many consumers regard the currency as an investment rather than a means of exchange, depressing usage in stores.
But now that issue, at least, may be easing with the slide in Bitcoin’s value over the past few weeks. And at least one online merchant remains firmly committed not just to Bitcoin but to blockchain technology. Overstock.com, which started accepting Bitcoin in 2014, has since built its own blockchain subsidiary, Medici Ventures.
“Any concerns … are outweighed by the potential we see in the blockchain, and we will continue to accept the cryptocurrency as a payment form while we continue to explore further world-changing applications of the blockchain,” a company spokesman tells Digital Transactions News via email.