Bitcoin (and other cryptocurrency) corrections explained in less than 2 minutes!
You may have heard the term 'correction' being thrown around a lot lately...
'Don't buy now a correction is coming!'
'Buy after the Bitcoin correction!'
'I finally bought some cryptocurrency and the price corrected dammit!'
But what exactly does it mean?
In simple terms a correction is a reverse movement, usually negative, of at least 10% to adjust for an overvaluation. Corrections are generally temporary price declines interrupting an uptrend in the market, and can occur even when there is no evidence that the increasing price trend should cease.
They are often caused when investors temporarily slow down their purchases of cryptocurrencies, which commonly leads to a pullback toward a short-term support level. This can occur after a steady increase in value, as investors may become more cautious buyers at the higher prices and look to reevaluate the market, resulting in a decrease in purchases. The drop in purchase volume will stop the upward price trend from continuing while the market re-evaluates the short-term direction.
Should you be worried? Well despite the uncomfortable nature of watching your Bitcoin balance drop by 10% or more, market corrections can be healthy for both the market and for investors.
Cryptocurrency markets are extremely volatile on a short-term basis, though if you have a look at Bitcoin (as one example) it has a strong track record of success over the long-term. Many view corrections as an opportunity for the cryptocurrency market and traders to digest recent gains and avoid a sense of irrational exuberance in the short-term. For investors, corrections provide a chance to see how truly comfortable they are with market risk, and to make changes to their portfolio if they so choose to.
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