Cryptocurrency, the digital revolution in finance, has garnered immense attention in recent years. With its potential for high returns and rapid growth, the market has witnessed both spectacular rises and alarming crashes. This article delves into the factors behind the volatility of cryptocurrencies, exploring what causes these digital assets to plummet and who revived this seemed like loosing investment.
Crypto currency went from zero to hero in less than three years. Bitcoin being the biggest crypto currency, it went from $4700 US back in 2019 to $80800 in 2021! People have invested millions into this gold rush and than it happened! Nightmare on Elm Street for Crypto! Joe Biden took office as the 46th US President and crypto took a nose dive, bankrupting many investors within months. Bitcoin went from $80800 in November 2021 to $21000 in November 2022! Did US crypto currency regulations kill the crypto or was cryptos back broken by something else?
Causes of Cryptocurrency Market Crashes
Regulatory Developments: Government regulations significantly impact cryptocurrency prices. Announcements of strict regulations or bans in major markets can create panic among investors, leading to massive sell-offs and market crashes.
Market Manipulation: Cryptocurrency markets are vulnerable to manipulation due to their relatively small size compared to traditional financial markets. Whales, individuals or entities holding significant amounts of cryptocurrency, can influence prices by making large trades, triggering a chain reaction of buying or selling.
Security Breaches: High-profile security breaches, such as hacking incidents on cryptocurrency exchanges, erode investor confidence. When users lose their funds due to these breaches, it often leads to a sell-off, causing market prices to plummet.
Market Sentiment and Speculation: Cryptocurrency prices are influenced by market sentiment and speculative trading. News, social media trends, and public perception can trigger sudden market movements. Fears or rumors about regulatory crackdowns or technological issues can lead to panic selling.
Market Overvaluation: When the market experiences rapid and unsustainable price increases, it often results in a bubble. Eventually, the bubble bursts, causing prices to crash as overvalued assets return to their intrinsic value.
Revived by Rumour
The largest cryptocurrency by market capitalization is rising this week on the growing notion that a spot Bitcoin ETF is a matter of when, not if. On Monday, a false rumour that the BlackRock ETF had received SEC approval sent BTC soaring higher until it was immediately disproved. Although there was a slight market sell-off, Bitcoin today traded back around Monday’s high of approximately $30k as markets continue to factor in the likelihood that one or more spot Bitcoin ETFs will be unveiled soon.
Bitcoin was soaring because it might unexpectedly and significantly increase investor interest in the cryptocurrency. That’s because anticipation for the launch of spot Bitcoin exchange-traded funds (ETFs) grew throughout the weekend, reaching a peak on Monday with the announcement that Grayscale Investments had achieved its ETF goals. The Securities and Exchange Commission (SEC) first turned down the company’s request to turn its Grayscale Bitcoin Trust into a Bitcoin ETF.
Can this rally go on? One would assume so, given that a favourable environment for digital currency is revealed even when spot crypto ETF prospects are excluded.
But to invest into crypto is to be on the ball 24/7, buying when in decline and selling when the crypto goes up in price as we ave seen just yesterday and today. Which means, to invest into crypto means to see the bigger picture. Governments can make or brake your hard earned money and so can rumours!
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Can bitcoin reach the status it had before Biden administration? Perhaps, but no rumour will catapult it that high. Restrictions and regulations would ave to be lifted in order for investors to believe in higher gain. This way, crypto will stay a roller coaster that will discourage even the biggest optimist. If rumours and government policies control this type of investment, is it worth a while for an average investor? Possibly, but risk is very high.