Why do the Cryptocurrencies fall?
The crypto-market is living bad days, and investors fly away
If you have a peek of the latest changes in the top cryptocurrencies by market capitalization, you will find that the scenario is far from being positive. In fact, almost all of them are losing value in the market.
Is it a good or a bad moment for entering the crypto-world? Let us analyze the reasons for this drop before taking any decision.
As usual, one can find interesting learnings by observing the evolution of the most relevant cryptocurrency at the moment. The Bitcoin chart shows a critical descent of its price and market cap on November 14th. Since that moment, the vale has been permanently decreasing.
The answer to this sudden fall is clear. As Steven Rossolillo explains, it is mainly due to “panic”, as it happens in every other economic market. But why do the investors decided to sell on that specific moment?
The reason is called hard fork. It is actually very interesting to notice that the hard fork was executed over Bitcoin Hash, and not on the original Bitcoin chain. However, the split of Bitcoin Hash into Bitcoin VS on 15 November 2018 may have been the last push to make some investors leave this unstable market.
The last hard fork was just additional proof for the low confidence on the crypto market. Actually, the confidence of the investors has been fragile during this whole 2018, and there were no signs of an early recovery since the big price drop in December 2017.
The interest of miners on BTC decreased during the last months, and we can think of a relationship between the decreasing hash power of the network (computational effort put by the miners) and the decreasing revenue obtained from that power. The reward needs to be attractive enough for the miners to keep working.
We can summarize the key facts that we have collected from the public information about the Bitcoin blockchain and the market capitalization of the cryptocurrency:
- The rewards paid to miners has been decreasing for the last year.
- Miners are losing their interest on Bitcoin, and the computational power of the network is decreasing.
- The price of Bitcoin has not recovered from the big fall from December 2017, and the hype for Bitcoin seems to be over.
- A new Bitcoin split, produced on the Bitcoin Cash chain on 15 November, created the new currency Bitcoin VS. This damaged the confidence of the investors and the massive selling started.
- The price of Bitcoin and most cryptocurrencies has been decreasing for the last month.
From the statements above, the future of Bitcoin does not look very good. However, it is too soon to make a reasonable prediction about the cryptocurrencies market. There are actually other indicators that can change our perspective.
In fact, cryptocurrencies are supposed to be digital money. Even when most of the people just think of cryptos as a speculative financial product, we cannot forget that they are used for economic transactions. Actually, the number of daily transactions of Bitcoin is increasing, slowly recovering from the crash of the last December. The price of BTC may stabilize one day in the future if the users normalize the use of cryptocurrencies as an alternative method of payment.
Another interesting fact is that the difficulty of the network adapts to the hashing power. This means that when the computational effort of the mining network decrease, the blockchain makes it easier to mine a new block. This way, if many miners leave the network it will be more attractive for others to start mining for the rewards.
The Bitcoin blockchain has some technical flaws that produce a natural deflation of the Bitcoin on a long-term basis. However, even when Bitcoin is the most representative cryptocurrency, there are many other alternatives out there that can take its position once the crypto market finally reaches a stable state. The technology evolves, and cryptocurrencies have been on the top of an overwhelming hype cycle.
The future of cryptos is uncertain, but now we can understand the latest reactions of the market based on the evolution of Bitcoin. The 18th-century nobleman Baron Rothschild stated that “the time to buy is when there’s blood in the streets.”. The cryptocurrencies are bleeding, but who knows if they will not die this time.
Innovation is always spinning forward. Just like a Drill.
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