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The Black Tuesday
The Black Tuesday, 16 Jan 2018 was the day which proved for one more time that Cryptocurrencies are notoriously volatile. In less than 24 hours, crypto markets lost $30 billion which is roughly the size of Estonia’s economy. Bitcoin and various altcoins suffered over 40% losses in market capitalization amid the regulatory uncertainties. Bitcoin’s price went under $10,000, matching early December’s price levels.
This free fall was worse than the massive price correction that hit Bitcoin during the Christmas period post its all-time high. Prominent altcoins to were hammered hard, Ethereum was down by 20%, Ripple by 21%, Litecoin by 14%, Stellar by 22% & IOTA by 17%.
Why this Blood-Bath?
The price of cryptocurrencies usually goes up and down in line with news events. As you may have already noticed, whenever there is news that some big financial player signs a partnership with a blockchain company, that crypto’s price goes up. Consequently, when negative news hits the papers, prices go down and today makes no exception. However, there were multiple factors for this chaos:
China: A Bloomberg report suggested that China is preparing to block domestic internet users accessing international bitcoin exchanges. China always had a big impact on Bitcoin prices. For instance, when the People's Bank of China banned payment companies from working with bitcoin exchanges in 2013, the market immediately dipped.
Similarly, when China banned initial coin offerings (ICOs) & moved to shut down crypto exchanges in September 2017, there was big cry in the crypto market. Also, there are anonymous reports which suggest that the Chinese central government is working to drive out the country’s bitcoin mining community. Believed to be the largest crypto mining community in the world, the group poses many risks because their sheer size and volume can alter the market.
South Korea: South Korea is the biggest market for cryptocurrencies. Last week, Korean Finance Minister ‘Kim Dong-yeon’ today told local radio station TBS that banning crypto trading was “a live option”. He revealed that the matter was being reviewed by the government. The news triggered massive sell-offs, presidential office had to intervene to calm down fears by saying it was just a proposal from the justice minister and no final verdict had been reached.
Chinese New Year: The Lunar New Year, is coming up on February 16, 2018, and just like Christmas in December resulted in a drop, the Lunar New Year also takes money out of the markets. The Lunar New Year is celebrated in a big way, people buy gifts and travel and around $100billion is spent during this time. Given how crypto markets have retail investors, it makes sense that such an event would result in people selling off for the short-term.
New Investor Community: As of today, far more technical people are a part of cryptocurrency markets and one thought line is that demographic shift could be one of the reasons exacerbating the downturn.
If Bitcoin trading is banned in countries like South Korea & China, it would take out a significant chunk of trading volume, resulting in an even bigger pull back. The price drops we are experiencing now are merely in anticipation of such a ban, as investors and traders sell to cut losses.
Right now, crypto market looks like the fallen house of cards but we believe that markets are resilient and cryptocurrencies are here to stay. Though currently, almost everything looks cheap, but investors should remember that in volatile markets like these Big Gains come with Bigger Risks. We advise due diligence & caution.