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Why are Cryptocurrencies Currently Tanking?

Welcome fellow crypto enthusiasts! Despite this deepening bear market, I hope you are hanging in there. Unfortunately, things are most likely going to get even worse before they get better so hang tough. 

Since November 14th I have been asked this question multiple times and I’m sure this is a question that is on a lot of people’s minds.

Why are cryptocurrencies currently tanking?

First off, I have had people use the word currently but mean different time frames. While some were asking about the drop-in price since November 14th others have meant the overall drop in price since cryptos peaked. I will first tackle the price drop since the 14th and then I will address the overall price decline after that.

My honest answer is I don’t know for sure, but I have my suspicions. It could be as simple as the long-standing 2018 support level finally gave out and it caused a lot of selling. It is possible that there were a great number of sell-stops placed just below the 2018 low and when that support level failed it triggered those stops.

Bitcoins Daily Short-term Price Chart

Short-term view of BTC price

It is also possible that the price tanking has something to do with the Bitcoin Cash hard fork on November 15th, which pitted the Bitcoin cash SV group against the Bitcoin Cash ABC group. Craig Wright one of the major players in the SV(Satoshi’s Vision) group tweeted that if a war broke out between the two groups that a lot of Bitcoin would have to be sold in order to finance it. He also said that a $1000 Bitcoin price would not bother him.

Bitcoins Daily Long-term Price Chart

Long-term view of BTC price

My feeling is that it wasn’t just a coincidence that basically the whole crypto market tanked on the 14th. I believe that the selling of Bitcoin by these whales to fund their war is a major reason for the huge drop over the last few weeks. If this truly is the case then I believe it exposes what I see as a major issue with some cryptos, too much-concentrated wealth, in other words too few holding a vast majority of the coins or tokens. I do believe that over time this can correct itself as those holders sell off their crypto distributing it to many other investors.

For anyone interested in my thoughts on the long-term selloff keep reading.

Some people will say the continued drop in crypto prices is because cryptos are a scam, they were all hype or a fad which has past. I personally don’t feel that is the case, I believe that there are cryptos that have a real purpose or help solve a real-world problem. Having said that though I also acknowledge that there are also a lot of scams out there. It is very possible that a majority of the 2000 plus cryptos really aren’t needed, don’t have a purpose or are outright scams. But even if that is the case it does not mean all cryptos are worthless or scams.

We must remember that this is a very young asset class and as such, it is prone to have its share of problems and even scams. Unfortunately, whenever there are huge sums of money flowing around, especially in a new relatively unregulated market there are going to be criminals looking to take advantage of the situation.

We also witnessed in 2017 a level of investor hysteria most likely not seen since the dotcom bubble of the late ’90s. To put it simply, that type of hysteria and price appreciation was absolutely unsustainable. On December 6th and 7th alone the price of Bitcoin increased over $5000, from a low of $11,590 to a high of $16,649.

Bitcoins Daily 2017 Price Chart

Bitcoin’s price increase during 2017

Now simply saying that level of hysteria was unsustainable does not explain the ongoing bear market. I believe there are many factors that have contributed to this. One cause I would argue is that the hysteria last fall and running into early 2018 brought people into the market that had very little or even no investing experience. I witnessed this first hand as I was approached by coworkers, friends, and family who were eager to jump in when they heard what was happening in the crypto markets.

Most of them had very little experience investing on their own. So, when prices started reversing, I believe many people panicked and sold, so you end up with a domino effect. As I said though I believe there are many factors, once prices started dropping the market sentiment changed the hype quickly turned negative and as prices have continued to drop the negativity and bearishness has increased.

A simplistic answer to this question is just that cryptos are in a bear market. Bitcoin has been through this quite a few times, this is nothing new. The last time was when Bitcoin peaked at $1175 in December of 2013 only to enter a correction which lasted for almost two years. During that correction Bitcoin lost 86% of its value from the peak. The same question could have been asked late in 2014 and probably was. My feeling is that this is just a normal market cycle for Bitcoin and unfortunately whether we like it or not the rest of the crypto market is tied to Bitcoins’ hip. Whatever Bitcoin’s price does most of the rest of the market follows, I really wish it wasn’t the case but for the most part today it is.

I remain very bullish long-term on cryptocurrencies, I feel that there will be another bull market, but we just must be patient and let this market cycle work itself out. I also feel that this will not be the last bear market for cryptocurrencies, as I said I am confident another bull market is coming but I am also just as confident that it will be followed by another bear market. As I have said, in my opinion, this is just part of a normal market cycle, but I believe surviving this will make us all better able to handle the next cycle.

Until the next article, Take care!



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