The Bitcoin market is a volatile one. Can it crash? Can the value of bitcoins increase exponentially to continue on its current growth trend?
Bitcoin has been around since 2009, and now, in 2017, people are still asking if this cryptocurrency will ever crash. Can Bitcoin crash or not? The response to that question is a complicated one because there are many factors affecting the price of bitcoin right now.
Crash History of the Bitcoin
Bitcoin has crashed 80% or more three different times since 2012. This is not new. The current 41% drop is not as bad as the other times when Bitcoin has crashed 80%.
For the record, it can be hard to study stocks based on their patterns (called technical analysis). Shares are like small pieces of real-life business. Over time, they change and grow. Sometimes they even fail. For these reasons and more, stocks do not always behave predictably.
Cryptocurrencies are not businesses. Blockchain is the technology on which cryptocurrencies are based. It can be used in the real world too. Blockchains are different. They do not always become accepted, and when they do, it does not mean the associated digital money will increase in value.
Cryptocurrencies are not that complicated. They depend on supply and demand. If people want a lot more of them than there is, the prices go up. So, looking at how much they were worth beforehand might be good if you want to know what they are worth now too.
The demand for Bitcoin is hard to predict. But when the long-term utility of Bitcoin is called into question, the price drops. For example, when China announced restrictions for cryptocurrencies in 2017, Bitcoin had a sharp pullback. People from China cannot use their money to buy things. This is because the government told them they could not spend it. Sometimes other countries get mad about cryptocurrencies too and do similar things.
Whenever Bitcoin's long-term future comes into question, people panic, and the prices temporarily plummet. If the current crash follows the historical pattern, Bitcoin will be worth $13,000. It would need to drop 80% from its previous high to get there.
Reasons that Causes Bitcoin Crash
The Emergence of a Better Alternative
Bitcoin's recent emergence has sparked a debate about its future and the potential for cryptocurrencies in general. Bitcoin is a digital currency that has had some problems recently. Other digital currencies like Etherium, Litecoin, and Ripple have been made. A cryptocurrency that desires to be a part of the mainstream financial system will need to have many different features. It might not look like it's possible, but Bitcoin's success or failure in addressing the challenges it faces could control the fate of other cryptocurrencies in the future.
Unacceptance by Sellers
The price of bitcoins has gone down because people have been talking about them in the news. A lot of people are worried about them. People in China made rules for how they are used with money, and that makes lots of people not want to buy them.
The price of the cryptocurrency dropped to below $30,000. This is more than 30% lower than the price a few days ago. The cryptocurrency has been falling for a week. Ether, the main coin on Ethereum's blockchain network, goes down. Ether was worth less than 2,000 dollars on one day. That is a little more than 40 percent of its value in less than 24 hours.
- Announcement of crypto Ban
- Any related FUD (fear uncertainty and doubt) news
- Raising capital gains tax
Do You Lose Money if Bitcoin Goes Down?
Bitcoin, like all other investments goes up and down. If you sell bitcoin while the market is in the red, you crystalize your losses. If you sell bitcoin when it is in the green, comparatively speaking, then you are taking profits.
If you have the HODL mentality and don’t immediately sell when the market starts to dip, or when some FUD news happens, you won’t permanently lose. On paper you will lose, but if you do not actually cash out and wait it out, eventually it will go back up.
Some investors get scared when the price of their investment goes down, and they sell. It is usually better to keep your money in the hope that prices will go back up again.
There are two ways to lose money in the cryptocurrency market. One way is to sell your bitcoin for less than what it cost you, which is called crystallizing your losses. This means that you will never be able to get back those funds even if bitcoin prices go up later on down the line. One way bitcoin can be lost is through inflation. By not investing in your holdings, you risk losing money due to the effects of inflation.
What Happens If the Price of Bitcoin Crashes?
Will A Bitcoin Price Crash Affect The Entire Economy?
The Financial Stability Oversight Commission came out with a report. The report talks about how there are challenges to financial stability. Digital currencies were mentioned in the list of challenges. The agency said that the influence of virtual currencies is very limited on financial stability. The reason for this is that the bitcoin ecosystem is currently not very big.
Subprime mortgages caused the last serious financial crisis in the U.S. economy. The crisis happened because there were many different things that all happened at once, like a person. Mainstream actors were active contributors in the process. For example, subprime creditors beyond the United States took out faulty loans. Multinational banks sell the loans they have to other people.
They put them together and sell them as a package called a derivative instrument. These packages were then sold to investors who bought some of these packages, and this is how the contagion spread to other parts of the world.
At the height of the crisis, a company that became Citigroup Inc. had done $19.7 billion worth of subprime mortgages. Bear Stearns went bankrupt in the aftermath of the crisis, and it did a lot of different things related to subprime mortgages.
Bitcoin is a type of money that people use. It can be different from other types. People who want to buy bitcoin will have to find exchanges where they can trade bitcoin for money. Some exchanges are not regulated, and these are the ones that many people use when they buy and sell bitcoin. Based on recent reports, individual investors and robots are the main players in these exchanges.
Big banks and investment firms don't have much of a presence in the bitcoin market. Even if they want to, they are not allowed because it is not regulated by the government. But some people think that stocks related to bitcoin have risen in value.
A measure of the commerce industry's caution is that they don't like to trade futures for bitcoin even though it has jumped by more than 1,800% this year. Even though Goldman Sachs is a clearing agent for bitcoin futures, they still want you to put up 100% of the money for your trade.
What Will Happen To The Cryptocurrency Ecosystem?
The online publication Axios has come up with an estimate of $250 billion as the monetary impact of a bitcoin crash. But this estimate does not understand how cryptocurrencies work and markets. There are already people who invest in the technology behind bitcoin. It is expensive to buy, but it can be worth it if you get a lot of money from your investment. Bitcoin is also used as a way to trade things with other people, and not just other countries—it can be used inside of companies too.
The price of most cryptocurrencies is going up. This is because more people are buying bitcoins. It might also go down in response to Bitcoin crashes. The amount of money a cryptocurrency has will determine if it will survive or not when the Bitcoin crashes.
Is It Smart to Invest in Bitcoin?
If you are considering investing in cryptocurrencies, it may be best to treat your “investment” the same way you would any other risky investment. That means that there is a chance you could lose all of your money and not make any profit. Cryptocurrencies can change in price very quickly.
You might want to invest in other assets if you don't like the way Bitcoin trades. Many people argue that Bitcoin is a good investment because it has a limited supply and is used by more people. But for conservative investors, this debate doesn't really matter - just find another form of investment instead.
A lot of people believe that bitcoins are a good investment. But you don't know if it will be a great one or if it will just drop in price and everyone will lose money. Some people are scared of losing all their money. But other people want to take that risk and try to win at bitcoin investments.
When you buy bitcoin, there are some risks. You might have to pay a lot of money to secure it. And if someone hacks your computer or the computer crashes, then all of the bitcoins that were in that computer will be gone and you won't get them back.
Bitcoin has a history of fluctuation and losing all of its money before recouping some losses. Bitcoin is the first digital asset to create other types of currencies, such as Litecoin or Ethereum. People who are thinking about investing in Bitcoin should weigh their options carefully.
If we look at Bitcoin's history, it is not always easy to know what will happen. If you want to buy some Bitcoin for a long-term plan, I think it is ok, but you should be careful. You might have good days or a lot of bad days.
Whether or not you should buy crypto as part of a diversified portfolio depends on what you think will happen to the popularity of cryptocurrency.
If you feel uncomfortable purchasing cryptocurrency, there are other ways to profit from it.