Why The Crypto Slump Is More Natural Than You Think

Education, Investing | December 23, 2018 By:

The crypto slump has been a devastating blow to some investors. Many crypto enthusiasts have already lost hope and sold all of their assets, hoping to get out of the declining market as soon as possible. However, we are still seeing people remain on the market hoping for it to become bullish once more. Looking at these people some think that they’re out of their mind, that the crypto bull is years away, but it will surprise you when I say that these investors are the smartest and most experienced ones trading on the market right now.

Why the crypto market fell so badly

First things first, we need to address the reasons why the crypto market fell, and later on, I’ll show you why this is just a natural occurrence in the world of finance. Let’s go back to when it actually increased the most. Back in December 2017 when Bitcoin peaked at nearly $20,000. There were so many mixed feelings about the future of the crypto, the enthusiasts tried to keep the hype alive but all of the experienced traders knew that it was time to sell.

A massive migration of traders (Supply and Demand)

It’s important to note that even though cryptos are affected by pretty much the same indicators that affect other assets, they also have a very specific indicator themselves. The Hype. This is an amazing word to describe the crypto market. Back in 2017, we were able to see experienced traders migrate in the thousands over to the crypto market.

These people had years of experience in trading with more traditional assets like Forex or stocks. Therefore they were quick to spot the immense potential that cryptos had and quickly stocked up on Bitcoin.

Thanks to these experienced traders the cryptos started to grow at a rapid pace, which then created this massive hype. All of the beginners started to invest at points like $16,000 or $17,000. At a time when all of the experienced traders were trying to get rid of their assets. This managed to balance things out a bit, but soon enough Bitcoin became way too expensive for beginners, which eventually damaged the Demand & Supply balance.

We saw pretty much everybody selling off their Bitcoin, often times even exchanging them for fiat currencies, which created a massive deficit for demand, while supply was racking up. Now, this is economics 101, so it should already tell you why the price slumped so rapidly.

Development outpacing adaptation

The blockchain is an ever-evolving sphere. It is a technology and it will stay as a technology. And in many cases throughout human history have we seen technology outpace the mind of a human, beyond its comprehension. This was why WW1 was so devastating as nobody was ready for the industrialized world to engage in combat they still had the old mindset. The same thing happens here, everyone is resisting change that happens in Blockchain which leads to these consequences:

Way too much Competition. It seems that every single day we see a new altcoin come to the market, with better development teams, better-optimized systems and more importantly, a niche developed specifically for 1 industry. E.g. DENT for mobile data

Forks. Forks are more relevant to new cryptos, which tend to be a lot more successful. Because of this, the new crypto always develops faster than the old one. This is why we saw a Fork for Bitcoin Cash has such a massive effect on its price.

Mining. The mining craze has indeed boiled down a bit, but remember when everybody was investing in them. Pretty much every person with a little bit of money had a miner either at their house or a large farm somewhere in their local city. Because of this, the production of cryptos outpaced public sentiment, the investors just didn’t have enough resources to invest in all of these new cryptos, which immediately created a surplus, leading to the massive slumps we see today. There are cryptos out there, billions, but nobody really wants them.

Why was this natural though?

The crypto market is very young compared to its counterparts. Therefore it still has a long way to go to fully develop. Because of the hype a lot of platforms were made, some claiming to be decentralized some remaining in the centralized sphere. All of these options just created an atmosphere where traders just didn’t have enough time to adapt to the market in time or just keep up with it.

Because of this, we see some new cryptos be completely disregarded as people don’t really bother to look into them, they’re still busy learning about Bitcoin and Ethereum and how they work.

These types of slumps are very natural for a young market. It starts off strong with hype and good investor sentiment being its main driving force, later it grabs the attention of experienced financially literate people and institutions as well, who reduce the hype to a simmer and balance the market.

Even experts like Vitalik Buterin have said that the slump was expected, the question was about when it would happen. All of the experienced traders knew it and were able to make a really nice profit, all of the beginners driven only by hype have been left behind, but the future is still bright.

However, Buterin also said that Blockchain needs to be taken at face value, it needs to stop being considered as a “get rich quick” strategy, and be seen as the innovation it is in the transaction sector.

Other experts like Nika Sabo, are quite worried about the market’s future as governments and state institutions get more and more aligned with the industry, further trying to regulate it and incorporate it into the economy.

What does this mean? Is crypto finished?

No, absolutely not. Cryptos have a long way to go still. But this slump was a lesson we all needed to learn. To stop perceiving cryptos as the ultimate way of becoming rich. Further down the line, it looks like the public sentiment isn’t going to change much, so we can expect cryptos to continue falling they way they’re doing now. But in the future, once the dust has settled and people start taking the Blockchain technology at face value, the market will be able to recover and become a lot more stable.

If you’re still keen on crypto investments, give all of the low market capitalization ones a try. As Bitcoin isn’t too profitable unless you day trade.

This story originally appeared in ForexNewsNow.