Everyone in the cryptocurrency world has been freaking out lately about how cryptocurrencies have been "crashing."
I've been using SteemIt to journal a bit about little experiments and my thoughts in the crypto world so I thought I'd chime in on my thoughts about what's going.
If you've been following along to my other posts about the "Top 8 Strategy," you know that I bought the top 8 by market cap and have been doing periodic rebalances. I own more cryptocurrency outside of the top 8 but that's the little experiment that I've been journaling about.
I was going to show a screenshot of the top 8 and how it had lost like $500 of the gains it's made... However, it's actually rebounded a bit today to the point where I'm only down a little less than $300 since my last rebalance...
Here's the current screenshot:
As you can see, I'm down $294 since my last rebalance (-27.6%), which was 14 days ago.
However, I only started doing this top 8 test a total of 48 days ago.
In the 48 days that I've been doing this, I'm still up over $432 from my original $340 investment. That's returns of 127.29%!! In 48 freakin' days!
Yes, it's in a rough patch right now and has been going down... But let's put this in perspective...
It's still up over 127% from around 6 weeks ago.
Looking at Bitcoin alone, roughly 7 weeks ago, the ALL TIME HIGH was the number that this current dip bottomed out at.
So this huge "crash" that everyone is panicking over is literally just where we were at roughly 7 weeks ago.
Alright... Now that we have some perspective, I want to try to understand what's happening.
I've been reading a lot and watching a lot of videos (so this clearly makes me an expert) and there seem to be quite a few reasons why this dip is happening.
First off, the drop seemed to start happening when Coin Market Cap, the site that basically everyone in the cryptocurrency world relies on to check coin prices, caps, and exchanges, removed several exchanges from their platform.
Coin Market Cap is essentially showing you the weighted average of each coin across all of the exchanges a coin trades on. This is why Coin Market Cap might show one price, Coinbase will show another, and Binance will show even another. Coin Market Cap is averaging out the price across all of these exchanges.
Some of the Korean exchanges had extremely inflated prices for their coins. Bitcoin would average around $15k per coin on most exchanges, while the Korean exchanges were showing it for $17k (for example). The fact that these coins were trading for inflated prices on these Korean exchanges, drove the average price up on Coin Market Cap...
Coin Market Cap wanted to show a more realistic average so they decided to remove many of the Korean exchanges from their averages... Which is totally fine...
Except for the fact that they didn't tell anyone that they were going to do this before they actually did it.
Overnight, the prices of all the coins seemingly dropped.
What had actually happened was that the reported average was now lower because these exchanges were excluded. However, most people had no idea that this is what happened, thought a crash was imminent, and started panic selling...
This was the beginning of the downward movement that we're seeing. A lot of people lost some confidence in the cryptocurrency markets because it became instantly clear how just one single website was able to shift the markets so drastically and so quickly.
Now... Since people now understand that it was simply a bizarre judgement call from one site that started this downward movement, why did it continue to drop?
Well, as a matter of fact, cryptocurrencies have dropped in a similar fashion every single year in January for the past 4 years...
Check it out:
So dropping is normal in January. There's been a pattern of it happening every year.
A lot of people attribute it to the Chinese New Year.
Basically, China has a big market of cryptocurrency traders and, like Christmas in the US, a lot of people in China take profits for holiday spending. This could be a big factor...
...And the pattern makes sense, seeing as it's happened every year in January.
Another thing I noticed is that Ethereum has actually held strong throughout all of this. It's dipped a bit but, as you can see, it's the only coin that's actually up for me since my last rebalance.
I did some digging on this and, according to https://coinmarketcal.com/, Ethereum is due for a hard fork soon into EtherZero...
I'm not sure if most exchanges are prepared to support this new fork or not but I imagine that there is a percentage of people that are pulling some of their money from other coins and putting them into ETH to capitalize on potential free coins after the fork. This isn't enough to take the cryptocurrency market cap down from a high of $832 Billion down to its recent low of $428 Billion... But it could explain why ETH is still seeing some gains while others are still dropping.
So then... What's my plan?
For the most, I'm checking out for a little bit.
If I check my numbers on daily basis lately, it drives me insane.
Knowing this is a potential pattern that happens every year, I'm just going to check out for a couple weeks. I'm not going to look at my portfolio balance again until probably February (although I'm probably lying and we'll secretly check in every few days). I'm not going to rebalance or move anything around for a bit. If ETH does hard fork and Binance supports it, I'll take my forked coins and then rebalance. :)
For now, I'm just gonna not stress and hope that February brings better days.
I'm not going to "buy more at a discount" like everyone says to do and I'm not going to panic sell anything either. I'm just going to let it ride and wait to see how it pans out for a couple weeks.
Is it the smartest move? Hell if I know. I'm not an expert but it's the move that suits me right now.
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