23 Oct Why are cryptocurrencies dropping?
Recently, there has been a global correction of the cryptocurrency market, which has led to the collapse of even the most stable digital assets. Therefore, investors and traders are concerned about the current state of cryptocurrencies. Some of them ask, “Why are so many cryptocurrencies dropping so fast?” In this article, we will discuss the main reasons for the cryptocurrency charts drops.
Supply and Demand
The perceived value of precious metals is determined by their limited market availability and public utility. Their value, as well as the cost of many other things, is determined by the supply and demand economic factor. In some countries, cryptocurrencies belong to currencies, and in others to the asset class.
For example, in the Bitcoin system, the maximum number of coins is approximately 21 million. Seven billion people live on our planet, so if 1 billion people want to have bitcoins, this will lead to a significant increase in value.
According to system rules, new coins are issued at a constant speed, which cannot change. The offer is limited, so people who consider this coin valuable and want to purchase it are forced to pay more and more.
Lowering the remuneration in the Bitcoin system for a block helps to reduce the extraction of coins, so the price rises. In other cryptocurrencies, the same thing happens, although the price of Litecoin almost does not respond to this.
The blockchain maintenance process is quite energy-intensive. Such chains that are built on POW require a lot of energy. They are the most popular.
Nowadays, the Bitcoin blockchain consumes as much electricity as a small country. This affects its price since the mining of one coin requires a certain amount of electricity to be spent. With the increasing complexity of production, energy consumption increases.
When some negative news comes to the market, the impact of which calls into question the further functioning or development of the cryptocurrency market or a certain cryptocurrency, then large players set the tone for the market. They begin to get rid of such an unsafe asset. They sell it at the highest possible cost. Thus, the price is gradually reduced, and sales are growing more and more. Their goal is to protect capital and to exit from a potentially losing trade with less loss.
The following technical factors can influence crypto currency prices:
- • Any cryptocurrency can go down in price when it has a competitor. If a more reliable coin appears on the market than the one you already bought, then users will begin to sell their assets and buy it. Consequently, the value of the coin will fall. Another reason for the fall is the modernization of coins. If someone did not like the update, then they sell the coin.
- • Forks. If the fork is better than it was before, then investors are moving to work with a better model. If the fork failed, then it will fall in value.
- • Successful hacker attacks. They reduce the confidence of users in different currencies, which leads to the reason for the cryptocurrency collapse. Recently, South Korea’s largest cryptocurrency exchange Bithumb was hacked. Although some experts, such as Litecoin founder Charlie Lee, believe that this fact should not affect the cost of bitcoin, the rate confidently rushed down. This is due to investor concerns.
Economics And Politics
The following factors can influence digital currency prices:
- • Ban on cryptocurrency in countries. The Government of different countries may be aware of the prohibition of the exchange, sale, purchase, use, or investment associated with digital money. This entails a reaction from investors. Therefore, the cryptocurrency market may start falling. And the more influential the country, the more the price drops.
- • Bans from large financial companies. The situation is relevant when the leadership of large funds, banks, and other organizations is against working with cryptocurrency.
- • Opinions of authorities and experienced professionals. If such people talk about the depreciation of a certain digital currency, then in the future, this will lead to a similar fall.
Ethics and Morality Issues
Sometimes, developers can be not serious about their cryptocurrencies. They may ignore the gaps in their development. And people sell coins because of this.
Another reason for the fall may be unethical work by developers. The creators of the crypt can deceive traders. Even developers can conceal part of the coins so that they can be put into circulation, which significantly reduces the rate. The most common situation is when the creators assign most of the coins, and then artificially adjust the cryptocurrency rate.