This past year has been a rollercoaster for the cryptocurrency market. An explosion of growth has been intermittently interrupted by sudden dips caused by panic selling and negative news.
For new-comers, choosing cryptocurrency to invest can be stomach-churning. If you own any digital tokens, you are probably feeling bouts of nausea during this current market correction in cryptocurrency.
But don’t worry. The reality is that prices need to go back to normal following the hype and excitement.
Prices of cryptocurrencies may be falling at the moment, but they won’t stay down for long. The cause of the fall is unknown, and while theories abound, the decline of cryptocurrency prices is probably due to some contributing factors.
But the theories are merely an excuse for the market to rest and take a breather. There is no question of whether it will recover, but rather when.
What we are witnessing at the moment is an amalgamation of multiple factors that have led cryptocurrency to lose in value. Here are some of the most significant ones:
A market correction is when prices of shares fall by at least 10% over a 52-week period.
A crash, on the other hand, is when prices plummet by more than 10 percent in a day or a sustained drop over 20%
Corrections are not bear markets. They typically last for three months whereas market crashes can linger indefinitely. Given the stock markets enjoyed multiple record-highs last year, a market correction was overdue.
The purpose of market corrections is to interrupt a steep uptrend in asset prices temporarily. The spikes in crypto assets last year is a prime example.
However, that all depends on the price they came in every day. For early adopters of crypto-coins – and investors contemplating dipping into the market – the market correction in cryptocurrency is an opportunity to pick up assets with real value for low prices.
Looking at the December ‘17 prices, we have to ask ourselves one question – for how long did we think they would keep on going up?
There must have been a reaching point, after which the prices would start plummeting.
The same trend was also visible at the beginning of each year for the past three years.
New Cryptocurrency Regulations
Asia is one of third biggest cryptocurrency market worldwide – it’s a home of some of the biggest Bitcoin mining pools, cryptocurrency exchanges and attracts wealthy investors.
Hence, any news from that region that might impact cryptocurrency negatively, will have a huge influence on the market performance.
China banned ICO trading in 2017, but welcomed the New Year with proposals for tightening the regulations even further by banning centralised cryptocurrency exchange.
This, naturally, had an enormous ripple effect as investors have started selling their cryptocurrency in a fear of possibly losing it all.
A similar situation has been observed in South Korea. The authorities cracked down on all anonymous cryptocurrency exchanges to prevent the illegal use of cryptocurrency.
An analyst from a cryptocurrency trading platform eToro, Matti Greenspan, told Business Insider that the trading volumes from South Korea and Japan have significantly dropped:
Traders in these markets are usually buyers. Hence a large-scale exit could have created an imbalance in the market by driving the prices down and sparking panic.
Bitcoin Price Losing Value
The plummeting price of Bitcoin has unfortunately affected the price of altcoins.
Usually, if the price of Bitcoin goes down, the majority of coins go up. This time, however, Bitcoin price affected the entire market negatively.
The truth is that Bitcoin price couldn’t keep on going up – it reached an almost 140% increase within 12 months. It naturally had to drop in value at some point.
Bitcoin has experienced such a rapid growth due to rising popularity among investors as well as mainstream adoption.
The past year was a huge success for Bitcoin, even though it’s still not accepted as a payment method, pretty much everyone is familiar with it. For many, Bitcoin is the first currency they invest in before moving to altcoins or ICOs.
The growth in popularity also resulted in people investing in Bitcoin just because it was another trend, without understanding cryptocurrency investment at all.
The influx of this type investment also caused a large amount of withdrawals as soon as the price had started to drop. While it’s not the main contributor to the market crash, it has undoubtedly help.
What To Do During The Cryptocurrency Market Crash?
First of all, don’t panic – HODL.
The cryptocurrency market is predicted to be volatile until the end of 2018 and we will likely see CoinMarketCap all in red one day, just to wake up to it looking green the day after.
This might not be the best time for large investments, but it’s a perfect time to trade between different altcoins and take the opportunity of prices changing on a daily basis.
You have to be prepared that it might take longer to see any profits comparing to last year. During the crash, it’s all about spotting the perfect moment (which sometimes can happen in the span of few minutes) and trading between relevant coins.
One of the best ways to utilise the market dip, however, is a leverage margin trading on platforms such as eToro.
Margin trading allows you to trade and speculate on trades with an amount that can be higher than the assets that you hold. This way you can increase your return in investment (ROI) by “borrowing” money from users (or the exchange) and increase the trading amount.
Of course, you are risking losing everything you have and more, but if what you’re after is a quick and substantial profit, then leverage trading is one of the best options during the crash.
It might be worth to hold on to the coins you believe in the most, and just keep them on your wallet. If you’re convinced about their future success, then it’s unlikely their price will drastically drop and it will probably stay around the same price.
This is a guest post written by Megan Frydel, the owner of bitemycoin.com.