Why the Crypto Market is on a Downward Spiral

Why the Crypto Market is on a Downward Spiral It’s no secret that the crypto market has been going through some rough waters lately, but now it seems to be on an outright downward spiral. As soon as last week, when reports came out that South Korea and China were getting ready to crack down on ICOs, the market took another sharp dive, and now it looks like the downward spiral has no end in sight. This begs the question—why has this happened?

Reasons For the Drop

In the last 24 hours, the top five cryptocurrencies—bitcoin, Ethereum, ripple, bitcoin cash, and litecoin—have lost 11 to 25 percent of their values. As reported by CNBC’s Brian Kelly, The crypto market cap went from $210 billion to $192 billion today. We’re seeing massive outflows right now. This morning we were at $215 billion; now it’s almost $190 billion…I think people are selling because there was an expectation that institutional investors were going to get into the market and once they didn’t get in during the past week, I think that triggered some selling pressure.

ICOs

Initial Coin Offerings (ICOs) is how many blockchain projects raise money for their projects. It works similarly to crowdfunding but with the token being purchased for immediate usage instead of investment. The reason why ICOs have been so successful at raising capital is that the majority of them do not meet what most people would consider the definition of a traditional investment. An ICO involves the pre-purchase of a utility token that can be used immediately to access or use the blockchain platform once it’s built and deployed, as opposed to something like equity or debt instrument that can be held as an asset with underlying value.

Regulation

The crypto market has taken a hard hit in the past few weeks and some people are blaming the downturn in prices on government regulation. First came China’s ban on exchanges and ICOs, which caused an immediate sell-off across most major coins. And just recently, there have been rumors that the SEC might crack down on Bitcoin by requiring everyone who holds it to register as an investment advisor—the price of BTC dropped almost $2,000 after that one hit. While it’s difficult to say what role (if any) regulations are playing in today’s downward spiral, it seems as the more governments meddle with cryptocurrencies, the more likely they are to take them over entirely.

South Korea

As South Korea’s Financial Services Commission banned all forms of initial coin offerings (ICOs) in the country, the value of most cryptocurrencies such as bitcoin and Ethereum has dropped drastically. Since September, when the commission announced that it would be regulating cryptocurrency exchanges to ensure transparency in trading and investor protection, the price of most cryptocurrencies fell more than 30 percent against their U.S. dollar values. The commission said it would work with local banks to monitor the accounts of exchanges that deal with cryptocurrencies, to ensure that no illegal activities are being conducted through those accounts. South Korea’s tough stance comes after China announced a ban on ICOs just last month and ordered Chinese bitcoin exchanges to shut down operations.

CoinMarketCap Drama

Early last week, CoinMarketCap (CMC), which tracks the price of hundreds of cryptocurrencies, announced that it would exclude data from several South Korean exchanges. The decision was met with both criticism and support. The move comes after regulators in the country temporarily banned fiat-to-crypto trading in January. Some see CMC’s decision as an overreaction to the temporary ban, while others argue that it’s justified by irregularities in Korean markets that have made prices appear artificially inflated compared to other exchanges. Either way, the delisting announcement spooked investors who saw their assets lose 10% or more overnight.

Exchanges Delisting Coins

More and more exchanges are delisting coins, meaning there will be less and less volume over time. Unfortunately, most projects can’t survive without being listed on an exchange so the future doesn’t look good for them. The only exception to that is if they can get in with Binance or another top exchange, which is much harder than it sounds because of fees. At the end of the day, it may not even matter all that much since at least half of the market cap has been wiped out since the beginning of 2018. I don’t see that stopping anytime soon… or ever for that matter.

Ponzi Schemes

A Ponzi scheme is named after Charles Ponzi, who was inspired by the original scheme run by businessman and con artist Victor Lustig. The idea behind a Ponzi scheme is to pass yourself off as an expert in your field while luring people into sending you money through a fake business opportunity. After you receive the payment, you will continue to ask for more investment until the scammer walks away with all of your cash. The reason why the crypto market is currently on a downward spiral can be attributed to the high number of scams being carried out within the industry. Scammers are using ICOs (Initial Coin Offerings) as a way to lure investors into their schemes. An ICO occurs when new cryptocurrency ventures sell tokens or coins that allow investors to purchase goods or services from them in the future. The problem with these scams is that they are extremely hard to track down because most scammers operate anonymously online. When cryptocurrencies such as Bitcoin were created, it was assumed that they would be used mainly for legitimate purposes such as purchasing goods and services online or transferring money across borders quickly and efficiently.

Fear, Uncertainty, and Doubt (FUD)

Traders are no different than the rest of us, and FUD tends to be the predominant reason for cryptocurrency’s price declines. Fear of missing out sets in and causes investors to sell their coins and cash out. The market isn’t just dropping; it’s crashing. Panic ensues, leading more people to get out before they lose more money—causing a downward spiral.read for more info

Loss in Confidence From Investors After the Bitcoin Bubble

On December 16, 2017, Bitcoin hit an all-time high of $19,783.21. On January 9, 2018, it was trading for less than half that at $9,250. The price has since dipped even further to around $7,600. Since the all-time high in December of last year, the crypto market lost over $500 billion in market capitalization according to CoinMarketCap which tracks crypto prices and ranks cryptos by market cap—the total value of coins available multiplied by the price per coin. This rapid loss in confidence from investors has put downward pressure on the crypto market.

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