Why are Cryptocurrencies Dropping?

This article highlights an unpredictable drop in various cryptocurrency rates and some of the factors affecting the equation. It also sheds light on a number of unpredictable market forces which may cause instability i.e. inter/intra government policies and large investor groups. Moreover, it elaborates upon certain technical terms for layman understanding.

The primary purpose of the article is to educate the masses on the risks involved in cryptocurrency investments.

Why are Crypto Currencies Going Down?

In the world of crypto trading, there are a few red flags that make the whole affair pretty risky in terms of short or long-term investment. The most significant of such dangers is a sense of unpredictability that looms crypto trading. This sense of unpredictability is brought to life by multiple factors including inter/intra governmental policies, big investors, Covid-19, and a few other markers which we will look into in detail.

There should be no doubt that digital currency is a herald of the future in trading and commerce. The old ways are put to challenge as masses look for more flexible and readily available financial resources. To be specific, new investors have been noticed preferring platforms such as PrimeXBT, which allows one to start with minimal investment while gradually building up. Other digital platforms like Kraken and Swissborg are very well known among individual retailers for the direct buying and selling of cryptocurrencies.

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Why are Crypto-Currencies Going Downhill?

Although highly flexible and decentralized, cryptocurrencies offer quite a lot of freedom with your finances but do come with a major disclaimer: unpredictability.

Much like our traditional stock exchange, one needs to be on their tiptoes at all times in order to make the most of crypto-related benefits. A momentary distraction and the crypto value may plummet before one could realize the loss. 

Global Catastrophes

One of the most important factors that determine the rise or fall of any business is society itself. All around the globe, businesses braced for a continued downward trend due to months after months of Covid-19 related lockdowns and so did the crypto market. A strong sense of investment insecurity affected both retailers and institutions involved in crypto trading. It directly affects the rotation ratio, which is an investment/ trend reversal indicator per se, and as result investments themselves.

Any impending natural or man-made disaster may adversely affect crypto trading just as it would, any other form of business. A chain reaction is always around the corner and there are zero to none preventive measures to secure one’s digital investments in time, in case a global catastrophe takes place.

Inter/ Intra Governmental Laws

Speaking of institutions, certain governments such as China have officially banned all activities leading to the crypto trade. Keeping in view that China is one of the countries with a massive population and an active ban on crypto mining and investments has made the crypto world unstable. 

India is another big name with reference to banning all independent crypto mining platforms. The country is well on its way to centralizing investment and mining activities by bringing it under the Reserve Bank of India’s umbrella.

Under such circumstances, when many other countries are also contemplating a partial or complete ban on independent crypto-based activities, crypto trading is losing its charm of independence and decentralized investment model. Moreover, its credibility and long-term presence are also at a risk.

The Big Whale Factor

Another discouraging aspect of decentralized mining is large corporations or heavy-weight investors being able to influence the market. They have the financial capacity to make or break the game. 

When large corporations or investors liquidate their holdings for any reason, the market itself fluctuates and individual retailers are left with no other choice but to bear the brunt. As whales hold a significantly large number of assets, it gives them a chance to manipulate the market according to their liking.

Active/ Inactive Wallets

The chain reaction talked about earlier extends to active/ inactive wallets as well. Taking cryptocurrencies in and out of circulation, especially following trends, has a profound effect on overall crypto rates. It may adversely affect a new investor’s short or long-term investments by robbing them of their potential gains.

Recent trends in crypto mining suggest an increase in inactive wallets compared to active ones. Since masses dictate business trends, it can be safely assumed that after being influenced by the aforementioned market indicators, investors liquidate their assets in anticipation of worse to come, which as a result creates a liquidation crisis.

Conclusion

All in all, cryptocurrency, although still flexible and independent enough, has its own risks. It is different in many ways from traditional business models yet still retains some of the basic features. Therefore, It is recommended to not deal in crypto as a one-time thing but as an asset to be regulated and watched over in the short or long haul.

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In doing so, one must first familiarize oneself with all pros and cons associated with crypto-currency trading. More importantly, one must be aware of crypto market dynamics at both national and international levels.  It can be safely concluded that the cryptocurrency market is an ever-evolving space with market trends and indicators changing directions at a moment’s notice. There are far too many variables involved and it will take some time before crypto-trading truly becomes a globally accepted way to do business.

To understand the basics of Bitcoin trading, you can read our How To Trade Bitcoin Guide. It can prove helpful for traders who are just getting started with Bitcoin trading. You can also check out our list of top Bitcoin Exchanges To Trade With.