The cryptocurrency market hasn’t been the healthiest we’ve seen. There are quite a lot of factors affecting it at this very moment, but let’s try and boil them down to three main ones.
Cryptos Fall Because of Supply and Demand
Just like any other market, cryptocurrencies are affected by this. It’s basically
Let me try to illustrate it in a better way. Let’s say that Germany has just discovered pineapples and it is the first country to grow them. The supply of these pineapples is quite limited, but the European public absolutely loves them, which means the demand is high. This means that the market will adapt and make the price higher because the manufacturers know that it will still sell at a high price.
Now let’s say that the secret of how to cultivate pineapples has been disclosed and everybody is able to grow them. This makes the supply shoot up to a ridiculous level, and pineapples become very easy to get. The demand stays the same, people still love them, it’s just that they’re a lot easier to get. Because of this, the market will adapt again as companies start to lower their prices to compete with others.
The same thing happened to cryptos in January 2018. The majority of crypto holders thought it was a good time to sell their assets, which meant that the supply increased, but demand remained the same, ultimately lowering the prices.
Let me illustrate this as well. When Bitcoin was nearly US$20,000 not many people wanted to buy it as they thought the peak had been reached. Because of this mostly everybody wanted to sell, which increased the supply of Bitcoins from the side of traders but decreased the demand from them. Because of this, the price fell considerably as traders became desperate to sell their Bitcoins as quickly as possible. This spiraled out of control and now we’re hovering under the US$4,000 mark. However, this isn’t the only reason.
Mining and Tech Problems
As blockchain became more and more popular, the price of the biggest cryptos increased to a point where regular investors couldn’t invest anymore. Therefore they started to opt for cheaper altcoins. This created a lot of competition and a loss of advantage for cryptos like Bitcoin, Ethereum and Litecoin.
Another factor was the value. Bitcoin is quite old, therefore it isn’t quite as up to date to today’s standards of transaction times as other newer cryptos are. Therefore cheaper cryptos started to outvalue the old ones when they were packed with more innovation for encryption and speed.
Hack attacks were also a large hit for the investor community, as many started to feel quite scared about their assets, opting for a separate wallet rather than an account on an exchange. Or in most cases, people just sold off all of their coins because of a small hack that occurred on some exchange they’ve never heard of. This boils down to sentiment, but regardless, it was a big hit for the industry.
Mining is the primary way to generate cryptocurrencies and it became so popular, that imploded on itself. Let’s look at it this way. Miners aren’t too hard to get, electricity is reasonably priced, what’s holding you back from making a farm and just start rapidly mining crypto? Nothing, right? This is how most of the mining companies though and littered the earth with their farms.
You already know what happened, right? The supply just shot up. Investors couldn’t keep up with the rate at which cryptos were being made, ultimately making the miners sell them at a ridiculously low price, just to at least cover their losses. This is what we see with large corporations nowadays as well, as supply doesn’t correlate with the demand and mining becomes unprofitable.
Politics is Sensitive to C
Many countries realized the popularity of cryptos when it was quite late. Trying to jump on the hype train, some of them made quite bad decisions when they started to regulate and tax cryptocurrencies in their countries. The latest ones can be attributed to Spain, when it basically banned anonymity on crypto assets, basically the core value of the coins.
Other countries just outright banned cryptos, trying to protect their citizens from scammy ICOs and bad business plans from companies.
Some restrictions from financial firms were also sighted, when the National B
Just like politics are sensitive to cryptos, cryptos are sensitive to politics. This was proven when many experts started to discredit these digital assets, saying that they’re just a bubble and that they wouldn’t last long. For beginners, it was something to believe in as these people were quite famous in the world of finance.
Because of so many adversities, the only thing driving cryptos was the hype. Thanks to the hype, Bitcoin managed to reach almost US$20,000, but once the hype stopped even a little bit, all of the problems just attacked it with full force
Giorgi is a news reporter and financial analyst at www.forexnewsnow.com He has 3 years of experience in analyzing the financial markets of Forex and cryptocurrencies. He also likes making hidden jokes in his articles.