Cryptocurrencies have come a long way since their beginning about 10 years ago. Nearly all of them have seen ups and downs on their long journey to our modern day. The veteran of cryptocurrencies, Bitcoin has arguably seen the bumpiest road as it jumped from price to price, as well as headline to headline.
After years of ridiculing the asset, many critics were silenced in December 2017, when it managed to reach nearly $20,000, an amazing achievement when you realize that there was a time when it used to be priced at just $1. Although the price silenced some of the critics, there were still warning about the whole thing backfiring on bullish investors. Needless to say, it did indeed backfire. Starting from January 2018 Bitcoin and all the other major cryptocurrencies have been falling at a massive rate, with no sight of stopping in the nearest future. But what caused such mayhem? Is this even normal?
The crypto fall is not an end for cryptos
Critics jumped on the opportunity to ridicule cryptocurrencies after their fall, just as a drunk bachelor would jump on the last remaining pizza slice at a party. Calling it the end of all cryptos and generally sewing madness into an already mad situation, wasn’t too good about the price as well.
The fear mongering takes a toll on an investor’s psychology and it makes him doubt his decisions, ultimately making him abandon them completely. So in a way, these critics do indeed have some leverage over the prices, but here’s why you shouldn’t listen to them and be frightened.
Cryptocurrencies are a young market
Compared to other markets, cryptos are in their toddler phase, when they’re just now trying to adjust to the world economy. But how did such a small and young market segment manage to gain so much attention? Hype is the answer. Hype is such a marvelous word to describe something. It tells you everything and nothing at the same time. The same thing was with the hype for Bitcoin.
The hype of buying it, What for? Who cares! You’ll make a bunch of money really quickly! Although this was the case for some investors, it was what ultimately brought the cryptos down.
Supply and Demand govern our world
Supply and Demand are the very basics of economics. If you have high supply and low demand, you have lower prices. Turn that around and you have high prices. We can easily apply this to cryptos, so let’s get into it.
When cryptos were having a steady increase, there were thousands of experienced investors who were actually keeping an eye on it. These investors were looking at the assets, not as beneficiaries for the transaction systems of tomorrow, but an investment, something to make money from. And invest they did. Millions actually, which propelled Bitcoin and all of its altcoin friends to the stars. But just like these experienced investors know how when to buy, they know when to sell. At around the $19,000 mark, we could already see a small slowdown in the prices.
At this point, you would rarely see investors opting for a BUY option when the price is so high. Sure there were some fanboys who believed it would reach $100,000 but they represented only the smallest minority of the investors. Everyone else was selling. Now we have a situation where everybody is selling, but nobody is really willing to buy, what does this cause? A price decrease of course! As investors get more and more desperate to get rid of their coins, they become more willing to sell them at a low price, which just spirals out of control and low and behold, Bitcoin now costs a bit more than $3,000.
This is a classic Supply and Demand story. Supply was sky high, and Demand was an all-time low, it was pretty obvious it would happen and therefore nothing new to those who have at least some understanding of economics.
When you’re a beginner or just a mid-tier investor. Investing in something that costs $19,000 is pretty hard to do. Sure you can do it, but then it becomes very risky as you don’t diversify your assets, and if something were to happen with that 1 investment, you’re pretty much screwed.
This is why all the new and the “mid-tier” investors just ignored Bitcoin completely and opted for cheaper, but also quite popular altcoins like, Ripple, Ethereum, Litecoin and etc. We are visiting another crossroads between Supply and Demand. Fewer people want to buy Bitcoin now, so once again another factor decreases the Demand.
B..b..b..but altcoins are going down the drain too!
Yes, they indeed are. But it’s nothing to be surprised about actually. It can all be boiled down to Bitcoin and investor sentiment. Imagine you are an investor and have a boatload of Ethereum. You suddenly hear that the Bitcoin roller coaster has reached the peak and is about to come crashing down. What do you think? “Oh no! If Bitcoin’s price goes down, then surely Ethereum will follow right?” So you start selling it off. Now multiply that by at least tens of thousands and you get the picture. The altcoin downfall was a victim of panic as well. Everybody wanted to sell, and nobody wanted to hold, so here we are.
Will cryptos ever recover?
The way the market is going right now, this doesn’t seem to be the case in the near future. Bitcoin will still continue to jump around between the $3,000 and $3,500 mark, so if you still really want to make some money out of it, you can go for day trading. But don’t blame me when you get PTSD.
Even experts like Vitalik Buterin, the creator of Ethereum has said that the market will need some time to recover. He also added that after such a fall, a massive spike is highly unlikely as people get more and more cautious with their investments.
This is a major step for the cryptocurrency market. It is its first steps towards a more stable environment. Even people like Buterin, urge investors to stop looking at cryptos as a “get rich quick” opportunity and start seeing them as the marvels of technology that they are. Who knows, maybe in the future cryptos will be bough because they actually need to be used? Only time will tell.