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12/12/2018

The Crypto Crash: From Sky High to an All-Time Low


The great crypto crash of 2018 is beginning to look more and more like one for the record books. The digital currency has been on a roller-coaster ride for almost a year now. Last year saw the currency’s share price rise to a record – breaking high of $19,346, however fast forward a few months, and the value plummeted to just $5,967, losing over 69% peak value. Two recent flash crashes in the space of a week have taken bitcoin's total losses above $250 billion, representing a 77 per cent drop in less than 12 months.

Since then, as predicted the value has been shaky, soaring over some months and plunging in the same breath, but what makes this coin, the most popular in the digital market, so volatile?

Why is BTC volatile

Bitcoin is a currency, but it is traded as a commodity.  The problem with trading Bitcoin like any other commodity, is that it goes up and down. However in the down times you have the snowball affect people start worrying and frantically selling. Many crypto enthusiasts try to urge one another to "HODL" an acronym that has taken 'hold' of the market - 'Hold On for Dear Life' - (very apt). Currently, there is a limited supply of this digital currency and lots of investors and customers demand for it. The market forces are responsible for setting the share price of bitcoin just like gold, sometimes it's high and sometimes its low. 

Why is the crypto market going down?

  • Bad Press: Public perception of the currency is affected by headlines of crashes as well as negative statements by financial institutions questioning the validity of the currency. One example of this effect is the event in 2017 where the CEO of JP Morgan threatened to fire any worker that invests in bitcoin in his investment bank. The digital currency suffered a 6% loss in value immediately.

  • Inadequate security: For bitcoin to gain stability, merchants, and consumers need a safe spot to store funds. Sadly, security issues are affecting the trust as well as bitcoin use. Some notable events happened last year when two exchanges were robbed of their funds. Cyber thieves have also stolen lots of money from crypto exchanges.

  • Strict government regulation: Bitcoin is decentralised and has no central authority regulating it. This allows users to avoid regular payment processes. It attracts cyber thieves who love stealing without leaving a digital footprint. Governments have refused to adopt the currency because financial institutions and banks are concerned about its ability to promote laundering or commit crimes.
Fortunately for Bitcoin, they are not the only coin suffering. Blockchain – based coin Ethereum is also feeling the effect of the crash. Flying high at $700 a few months ago, this has now plummeted to $140 on Coinbase, the bastion of crypto security, is currently sporting a series of charts that look like Aspen black - diamond ski runs.

So, what might may happen next?


 There are several theories, and I’ll lay out a few of them here. Ultimately, sentiment is bleak in the crypto world, with bull runs being seen as a thing of a distant past. As regulators clamp down, pie-in-the-sky ideas could crash, and shady dealers may take their shady dealings elsewhere, the things that made cryptocurrencies so much fun — and so dangerous — could be slowly draining away. What’s left is anyone’s guess, but at least it will make things less interesting. 

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