All the newbies in cryptocurrency world have begun to panic at the declining prices of cryptocurrencies.
The leading digital currency, Bitcoin, stumbled quickly after reaching an all-time high of $19,850 on 17th December to below $12,000 within a few days, as stated by CoinDesk’s Bitcoin Price Index. The question of every newbie cryptocurrency investor is, Why are the prices of digital currencies falling?
In case you don’t know, cryptocurrency is a new type of revolutionary digital currency which is designed to be a unit of exchange and stored as assets using decentralized technology. The price of cryptocurrency is affected by several factors such as:
- Government/legal issues;
- Market dilution;
- Bitcoin price;
- Restricted supply and demand/supply;
- The practicality of the currency and its ease of use and storage;
- Discernments of the cryptocurrency valued by the public;
- Media;
- Difficulty of blockchain;
- Scams;
- Trust in conventional systems;
- Amount of energy invested in – in the form of electricity – to fortify the blockchain.
On 27th December, the total market cap of cryptocurrencies has plunged from $621 billion to a stunning $567 billion, that is a staggering $54 billion overnight. What happened?
It is fair to warn you that investing in tokens or coins is risky because everything is unregulated, uncontrolled. This means that anyone investing in digital currencies should do it at his/her own risk.
Despite the fact that crypto-investors are left wondering about what could have caused the prices of cryptocurrency to decrease, the following are a few pointers that could have triggered that situation:
There is a hint that one of the causes for the fall of cryptocurrency prices had to do with the manipulation of the market. Bloomberg recently reported that a group of about 1000 crypto-investors possess 40% of all Bitcoin. This indicates that a small fraction of people can easily manipulate the market if they decide to do it.
These investors could initiate a temporary situation that depicts a high number of transactions by selling and re-selling the cryptocurrency back and forth and on small margins.
This happens so that they can sell the digital currency at a high price and then go ahead to induce a crash by selling off large amounts of Bitcoin. This strategy can work, and the only way that it could be thwarted is if other investors take notice of this temporary situation and begin to sell off their own Bitcoins as well. If this doesn’t happen, the crypto manipulators are making a lot of money.
Bitcoin is the standard by which every other cryptocurrency is measured, and that means all altcoins are hedged in one way or the other along Bitcoin’s success. However, in the wake of the early surge in Bitcoins, a majority of the gains obtained in cryptocurrency trading can also be attributed to altcoins like Ripple, Verge, Qtum, Cardano, Tron etc.
This makes enthusiastic investors begin diverting funds from Bitcoin, thus destabilizing the Bitcoin market.
The fall of cryptocurrency prices could also be attributed to other factors such as: