At the beginning of 2018, cryptocurrency investors faced a major setback. The virtual currency which was giving them more than 100% returns, crashed. Every other day the value was going down, and no one was sure about the future of cryptocurrencies. The value of Bitcoin fell from 6,000 dollars to 3500 dollars. Various financial analysts gave their reasons for the sudden downfall of the virtual money.
It was the time when the cryptocurrency market was undergoing major updates and developments. Few of the reasons behind the dropping value of cryptocurrency are discussed in this article.
A sudden hype:
Bitcoin became an international sensation as far as investments and other dealings are concerned. Various online retail shoppers started accepting bitcoins as a mode of payment. People from all over the world started purchasing cryptocurrencies, irrespective of the fact that whether they have any knowledge about the function of this currency. Media played a very crucial role in bringing cryptocurrency in the limelight. Buying cryptocurrency became a trend.
Euphoria stage:
Every market undergoes certain common events as far as trading in concerned. When anything new comes up in the trading market, it brings hope for investors. Then comes the optimism state where investors believe in the potential of that market. The investor starts believing in the shining future of the market and makes more investments in it. This stage is known as ‘belief stage.’ As soon as the investor started earning good returns, they tell others to invest in that market. Earning of returns forms the next stage of the market cycle ‘Thrill.’ At the next stage, the market is at its peak the ‘Euphoria stage. After Euphoria market starts falling. This happens with all kinds of businesses be it stocks, real- estate, etc. In 2018, the cryptocurrency reached its Euphoria stage of the market cycle. The sudden hype for cryptocurrencies raised investor’s expectations which when not met resulted in disappointment. Moreover, a lot more was going on at that time which had a direct impact on the cryptocurrency market. All these together lead cryptocurrency to its Euphoria stage which came quite earlier as compared to its expected time.
ICOs broke the law by selling unlicensed securities:
Another important event which resulted in the dropping of cryptocurrency value was selling of unlicensed securities by the operators of two ICO’s. It was a breach of the law. Initial coin offerings played a crucial role in the boom as well as the downfall of the cryptocurrency. Many companies started to advertise that ICO’s is a mode to get faster returns on the investments. Investigations proved that many of such companies were fake. People lost lots of money by making investments with these fake companies. This gave good reason to stay away from investing their money in cryptocurrencies.
The consequences of a media campaign:
Bitcoin was launched in the year 2009. Till many years down the line, investors were not aware of the virtual money concept. It was in 2017 that every investor big or small wanted to invest in cryptocurrency. Well, media played a vital part in creating awareness among people about the cryptocurrency. Media campaigns and advertisement made people believe that cryptocurrency investments are the future of online trading. People started believing that cryptocurrency investments provide the easiest and fastest way of becoming rich. As a result, more and more people started purchasing cryptocurrencies. And those who earned returns on their investments started asking other people to invest in it. Media played a major part in generating people’s trust in cryptocurrency. Hence, when negative reports related to cryptocurrency started coming up, many people believed that also. Cryptocurrencies were compared to the bubble which has reached its maximum threshold and could burst anytime. This made people worried about their investments, and as a result, many people sold their assets.
Bitcoin cash hard fork:
Another major reason for the downfall of cryptocurrency is the Bitcoin’s messy cash fork. Two major Bitcoin communities Bitcoin SV and Bitcoin ABC went under an argument. In November 2018 the houses split into two different competing chains. This split has a direct effect on the value of Bitcoin cash which further created doubts in the mind of investors.
Regulatory pressures and global pressures:
Extreme pressure from various regulatory and global bodies also have a great impact on the cryptocurrencies. Both CFTC and SEC have declared that they would not consider Bitcoin as legitimate security. Furthermore, global pressures such as tightening of policies by central banks, trade tensions and Brexit resulting in a decline of market liquidity also lead cryptocurrency towards its decline. Another major jolt for cryptocurrency was the banning of their ads by Google.
An individual should be very careful while investing their hard-earned money. It is advisable to do thorough research about the mode of investment you are planning to avail. There are various kinds of investment options available in the market. This includes both equities, as well as, market debt. Market debt comprises of debt instruments corporate and government bonds. These securities are fixed income securities and hence are free of risk factor.
Depending on one’s capability to take risks an individual should decide whether to go for equity or market debt investments. Taking advise from professionals or people who already have invested in that particular market can be highly beneficial. Learning from others mistakes is a good way to save yourself from making the wrong decisions regarding investments.
