For a couple of months now, most cryptocurrencies have enjoyed an upward tick in price with Bitcoin leading the pack. Most crypto coins were registering their new all-time highs and traders were very optimistic. These last days of December, however, saw Bitcoin and all its cousins’ price take a scary U-turn by more than 20%. The cryptocurrency market cap was way over half a trillion mark but retracted back to about $428B. Some people are worried that the so much prophesied about bubble is afoot. Crypto coin enthusiasts and avid supporters, on the other hand, termed the recent slump in price as a mere correction. According to their forex knowledge, nothing ever obtains a straight curve throughout-especially a product from a speculative venture like cryptocurrencies. It’s hard to exactly point out the exact cause. Nevertheless, there are some possible explanations.
Possible explanations why the price dropped
Its holiday season – a time to spend like crazy
How many holidays are there at the end of the year? Countless, right? Just to mention a few, we’ve got Christmas, Kwanzaa, Hanukkah, and New Year just right at the end of December. This is the worst time for investments and savings accounts as most people pull out their extra gains. Realistically speaking, cryptocurrencies are still trying to make themselves valuable to their holders. At the moment, most folks are in this investment due to its speculative nature. Since they can’t use them to buy daily goods, they have to withdraw them and buy some stuff. With Christmas season looming, most investors may have decided to liquidate their shares hence the reason for the price dip.
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Coinbase confusion over Bitcoin Cash
Since its inception from Bitcoin through forking, Bitcoin Cash and its parent have continuously locked hones over which one is the genuine Bitcoin. When Coinbase added Bitcoin Cash, its price exploded just a few hours to the announcement. This lead to the suspicions of Insider trading that led to Coinbase temporarily ceasing all BCH transactions to investigate the issue. Even though Bitcoin Cash transactions resumed the next day, this uncertainty made some people think negatively of cryptocurrencies, in general, leading to the price drop.
Increased attention towards altcoin (Bitcoin decrease)
Following Bitcoin’s amazing success record, other altcoins such as Ripple, Verge, Cardano, Qtum, and TRON have also registered an upward trend. Perhaps the investors felt so happy that they decided to pull their funds from Bitcoin and invested in altcoins. As a result, they (unknowingly) destabilized Bitcoin’s market leading to its price taking a downward motion. Bitcoin being the image of other cryptocurrencies also leads others to fall with it. Just ask someone if they know Bitcoin, and they will provide an affirmative answer. Ask them about other smaller cryptocurrencies and they will nod their head in disapproval. Basically, cutting Bitcoin’s head could result in obliteration of other blockchain-based virtual currencies as well.
According to a report by Bloomberg, about 1000 individuals are said to hold about 40% of Bitcoin. If these “whale” investors act in unison, they can unsettle and manipulate the market according to their whims. By initiating purchases and sells that spike transaction volumes, these folks can send fear, doubt, and uncertainty amongst other new and inexperienced traders resulting in the mass selling of coins. Once the price drops, these investors will buy themselves back in, but now at a lower price. What’s even sad is that these same people are the ones with sufficient financial muscle to afford bitcoin futures which cushion them from massive losses.
The Bottom Line
The good news is that Bitcoin and other top currencies have recouped some of their losses and are on an upward trend again. Some economists and analysts predicted that by mid 2018, Bitcoin’s price would be over $40k. Whether that will become a reality or not, cryptocurrencies are certainly an exciting technology to observe!