While the end of the last year was hugely successful for the cryptocurrency market participants, with the market value hitting $566.3 billion, the new year started with a lot of disappointment. At the time of writing this article, the cryptocurrency market value was $335 billion. The exact losses made by investors small and large are unknown, but one thing we know for sure is that they are huge. Right now it is unclear whether cryptocurrencies are going to reclaim their positions or keep tumbling down gradually. The bottom line is, the market is falling, and this is exceptionally clear today.
So, what are the reasons behind the fall? There are all kinds of theories out there (reptilian interference included), however, some of them repeat as different experts come up with similar explanations of what is going on. This article offers a summary of the events that led up to the cryptocurrency market losing almost half of its value over a short period.
China
Although only a few months ago the Celestial Empire banned ICOs and introduced strict measures to regulate the entire cryptocurrency sector, the market participants are still hoping for the best and looking forward to some good news. This may be a long wait as the news coming from China so far has all been negative.
The latest wave of plummeting started when the Chinese government came up with a new set of suggestions, such as limiting power supply to cryptocurrency miners. The problem is that Chinese authorities do not see cryptocurrencies as a positive factor in economic development. In fact, they believe quite the opposite, and since all their policies are aimed at boosting their gigantic country’s economy, it makes sense that cryptocurrencies are seen are nothing short of an enemy.
Another factor that came into play is the Chinese New Year. The thing is that most Chinese entrepreneurs suspend all business activity in the run-up to the festive period and spend their time doing anything but business, whether it’s buying gifts or converting cryptocurrencies into fiat money to raise funds for gift shopping. This is nothing new as for several years in a row we’ve seen the cryptocurrency market dip in January, and it’s always been quite a dip.
India
At the beginning of the year, reports started to appear on various news sources claiming that India’s financial regulatory authorities were planning to toughen up the control over the country’s cryptocurrency exchanges. In late January, financial institutions such as the State Bank of India (SBI), Axis Bank, ICICI Bank, HDFC Bank, and Yes Bank suspended the bank accounts of 10 local cryptocurrency exchanges, including BtcxIndia, Zebpay, CoinSecure, and Unocoin. Although later the Indian authorities came up with the excuse that none of this was supposed to happen, the ball was already rolling, and the market reaction couldn’t be stopped.
Besides, soon after the incident, the Indian Finance Minister Arun Jaitley commented that the government is not planning to recognize cryptocurrencies as legal tender.
The Disappointed Rookies
When bitcoin rose to $20,000 per coin, even those who were miles away from the tech world started trading cryptocurrencies. There is an interesting Joe Kennedy quote that perfectly describes the situation, “You know it’s time to sell when shoeshine boys give you stock tips.” These days, cryptocurrencies interest not only shoeshine boys, but almost anyone who can read or at least listens to the radio and watches TV.
In some cases, people sold their flats only to invest the full amount in bitcoin and other cryptocurrencies, setting up small mining farms in the hope of getting rich quick. Unfortunately, only a few succeeded.
Now that bitcoin is plummeting, beginner traders are rapidly selling cryptocurrencies to rescue at least some of their investments. However, experienced traders apply the “you don’t lose until you sell” mentality and do nothing. This means that rookies are dumping their last coins into the hands of those who stand a perfect chance to profit from it.
Chicago Exchanges Start Trading Bitcoins
A few months ago, two Chicago exchanges, СВОЕ and СМЕ, announced their decision to start trading bitcoin futures. The news was met by the cryptocurrency market players with a lot of enthusiasm. But bear in mind that traditional stock market players are far more experienced than their cryptocurrency colleagues.
It is quite possible that some large institution clients have started a complicated game in order to manipulate the cryptocurrency market and pocket some good profit. Just to let you know, a 7% return is considered pretty good for traditional traders, whereas in the cryptocurrency world, even 1,000% is not the limit. Sure thing, large businesses can’t miss out on an opportunity like this.
What to Expect Next?
Unfortunately, we are not in the position to make proper forecasts. Even the most seasoned financial analysts regularly make mistakes. Going by the market dynamics over the past few years, things should start getting back to normal around March. But a few years is not a long enough period for a reliable forecast. Of course, most market participants hope for the best.
Cryptocurrencies never plummeted as severely as they did in December. Yet, Bitcoin has not run out of its growth potential, and the cryptocurrency market will most likely start recovering soon, although reaching the same heights again may take a while.