Speculative Investing Overtakes Fraud for Bitcoin Use: Report

A kind of “flippening” has occurred in the cryptocurrency space but it has nothing to do with the jockeying for position among the top coins. Instead, this flip has been in the type of activity that has been driving bitcoin usage between speculation and drug dealing.

Speculative investing has overtaken bitcoin-fueled crime as the primary application, Bloomberg reports. The reversal is eye-popping, with criminal use narrowing from 90% at its height half-a-decade ago to 10% currently as speculative investing has taken control of cryptocurrency transactions, according to an official the U.S. Drug Enforcement Administration, whose parent agency is the U.S. Department of Justice.

It’s not that drug dealers have abandoned bitcoin altogether. In fact, it’s the opposite, as transaction volumes and the dollar value of bitcoin-driven crime has been on the rise. But so too has the number of speculative investors in the leading cryptocurrency, and as a total piece of the bitcoin-transaction pie, speculators now represent the biggest slice.

Criminal groups including drug cartels prefer cryptocurrencies for their features such as speed, less-pricey cross-border transfers and privacy, the latter of which is less of an incentive these days. DEA agent Lilita Infante told Bloomberg that public blockchains like Bitcoin are helping government officials to monitor illegal transactions and wallet addresses that are no longer obfuscated.

Bitcoin Dominance

Meanwhile, as the bitcoin use-case ratio has shifted, so too has the bitcoin dominance dynamic. Thomas Lee, market strategist and co-founder of Fundstrat, suggested to CNBC that the market is, in fact, responding to the positive developments surrounding bitcoin.

Lee pointed out “for many years, [bitcoin] was the only game in town.” In 2017 however, in light of the rise of ICOs and hundreds of new coins flooding the market, bitcoin’s dominance was more than halved from 80% of the broader cryptocurrency market to less than 40%.

In 2018, investors once again are showing a preference for bitcoin, as evidenced by BTC’s dominance having reached its best levels of the year in recent weeks to nearly 50%. Lee points to positive developments surrounding the No. 1 cryptocurrency by market cap, including the SEC’s decision not to classify bitcoin as a security, the ICE-backed regulated cryptocurrency exchange and enthusiasm surrounding a possible bitcoin ETF. Lee told CNBC: “[It’s] causing investors to decide that bitcoin is the best house in a tough neighborhood.”

Fundstrat’s misery index, which is a reflection of the mood of bitcoin investors, is hovering at a score of 39 out of 100, which Lee characterized as “recovering.” He suggested investors are afraid the bitcoin price will slip below $6,000 and remain in a persistent bear market. But Lee is quick to point out that it remains early innings for cryptocurrencies, as evidenced by the number of wallets, which hovers around 50 million and will be “matching internet’s trajectory” of 4.5 billion users.

Featured image courtesy of Shutterstock .

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

Gerelyn Terzo

Gerelyn has been covering ICOs and the cryptocurrency market since mid-2017. She's also reported on fintech more broadly in addition to asset management, having previously specialized in institutional investing. She owns some BTC and ETH.