Why are Cryptocurrencies Falling in Price?
It was not long ago when Bitcoin stunned the world markets with its skyrocketing price tag of $19,300. Now, compare that to its price on Feb 5, when the currency hit its lowest in the two months, dropping below $7,000.
It’s not just the bitcoin, other digital assets like bitcoin cash and ripple have also tumbled, losing roughly 70 percent of their peak value. As of Feb 5, 2018, various currencies went down in value between 11 to 69 percent greatly reducing the overall market cap. As a result, the market cap has shrunk from $830 billion in January to $450 billion at the time of this write-up.
Reasons behind the Downturn
A number of analysts are dubbing this downturn as the market correction necessary to bring down the prices to a less volatile level. However, we cannot ignore certain regulatory and market factors that played their part in the price slump.
Regulatory bodies have been skeptical about the cryptocurrencies from the beginning. Governments are concerned that digital assets could be used for money-laundering and frauds. And these fears got endorsements amid growing incidents of hacking, the sudden disappearance of some crypto-startups, and frauds. As a result, certain countries have come up with strict policy measures, sending the negative message to investors.
Early in February, Facebook announced that it will not allow promotion of cryptocurrencies and ICOs on its platform. This means advertisers will not be able to promote their crypto-related contents or offers on the Facebook. This was a bit surprising news given the fact that Mark Zuckerberg showed interest in learning Blockchain in 2018 – but Facebook aims to avoid another round of controversy.
Another reason is regulators’ strict actions in China and South Korea. The government in China has announced blocking access to all websites and exchanges trading in cryptocurrency– including platforms located outside the country.
According to the local media, the measure is to prevent financial risk and protect investors from growing incidents of fraud. Since China is a huge market for cryptocurrency trading, this move sent a very negative message to the market, resulting in a portion of the price dip.
However, it’s not just China or Asia that seems concerned over Bitcoin, financial institutions in the West are echoing the same. A number of leading banks in the United States and the United Kingdom have disabled crypto-currency trading via credit cards. Banks argue the same – they’re aiming to save the customers from bad debts and incidents of fraud.
Growing security concerns have also played their part in spreading negative market action. Recently, Coincheck, a leading crypto exchange in Tokyo fell prey to hackers who stole digital assets worth $500 million. While the Japanese watchdogs are inspecting the case, the story already did its damage, forcing regulators to take certain strict policy measures to protect investors.
Finally, cryptocurrencies are not the only assets facing the bearish trend lately. This week, stock markets from Asia to Europe and the United States have taken a nosedive as fears of tight monetary policy and interest rates increasing grew.
If you are in crypto-trading, this should not discourage you. However, we do advise you to proceed cautiously and in line with the advice of your trading consultant.