If you’re new to the cryptocurrency space, you may be panicking or wondering why Bitcoin and other cryptocurrencies have dropped so much in value. A lot of people panic saying that the market will crash, but I guess they’ve forgotten how much it has risen the past few months. An insane growth can’t sustain forever. Even after the fall to $6,000, it’s still higher than early last year when it was less than $2,000.
There are many reasons why the price of cryptocurrencies in the market go up or fall, but do remember that the market is not rational. It doesn’t always react the way you want it to. A piece of bad news from China or Korea can send the market dropping.
Here are some reasons why Bitcoin and other cryptocurrencies may be dropping in price.
Disclaimer: This article is not an investment advice or financial advice of any sort. Do your own research before investing into any cryptocurrencies.
1. Fear, uncertainty and doubt (FUD)
FUD is a common term used in the crypto space to refer to news that are just aimed at creating fear and doubt in investors’ minds. This would result in a drop in price. An example of that happening is Dimon from JP Morgan saying that Bitcoin is a fraud. It may be one of the reasons why it dropped last year.
Furthermore, the news from China isn’t always positive and when they announced that crypto exchanges will be closed in China, guess what? The prices dropped pretty low, but look at how high it has rebounded.
2. The increase in prices were too fast and unsustainable
When a lot of investors start pumping in money, the price keeps heading up and it’s not healthy. Not healthy in the sense that it’s probably unsustainable and leads to market correction every time. No market is bullish forever.
The best way to be safe is perhaps to buy the dip. This means buy when it has gone down, and not when it’s at its all time high. If you believe that the coin has a lot of potential and good fundamentals, then it’s perhaps safer to invest in it, rather than just buy a super cheap coin that does nothing (shitcoins).
3. Lack of knowledge in cryptocurrencies
One of the reasons that leads to cryptocurrencies falling in prices is probably the lack of knowledge in the technology. Many investors think of cryptos as a way to get rich and fail to understand the tech behind it. What’s valuable with cryptocurrencies is the blockchain technology, not just the fact that it can be used to transfer money.
This blockchain technology can change the way the world works, possibly in governmental elections as well in the future. I normally look at the technology behind the coin before I make any investments. How fast is the transaction speed and does it have zero or small fees?
4. Presence of lots of scams involving cryptocurrencies
Bitconnect is a great example of a crypto ponzi scheme. Many YouTubers and bloggers promoted Bitconnect and they earned quite a bit from the people who believed them. Bitconnect has then fallen and many investors have lost their hard earned money.
Schemes like this is why a lot of people have doubts with cryptocurrencies. Always do your own research rather than just listening to influencers.
In a nutshell
It’s normal to see a dip in prices every now and then, as the gains are a little too high too quickly. Even with the dip, the prices are still much higher than it was.