The Crypto markets have been going down. A lot. The two central questions everyone is asking are -
- Why is it dropping so much?
- When will the drop stop?!
While it would be quite hard to determine when will the bear market bottom, it helps to understand some of the underlying forces that are affecting the market now.
So, what's happening?
After the massive gains of 2017, we have entered into a correction and consolidation phase that has been kickstarted by the Mt. Gox creditors flooding the market with Bitcoin and characterised by dodgy ICO projects cashing out and newbies fleeing in panic.
- Mt. Gox
Mt. Gox was one of the first crypto exchanges in the world. By the time it filed for bankruptcy in 2014 it was handling up to 70% of all Bitcoin trades. Among the reasons why Mt. Gox halted trading and declared bankrupt is the disappearance (alleged theft) of 850.000 Bitcoins.
Since then, an old digital wallet containing approx. 200.000 Bitcoins was found. Creditors have control of that wallet and have been selling Bitcoins over time. Some recent sales are noticeable due to their size, frequency and the overall effect they had in the markets. The Mt. Gox wallet has over 162 thousand Bitcoins left in it.
- All-Time Highs
Whales most certainly bought a long time ago at much lower prices. As the market reached levels that seemed fanciful and downright impossible a few months back, a collective sentiment of 'picking a top' starts to brew. These guys want to lock in some profits, and as true believers in the tech that bear the scars of previous corrections ('crashes'), they know the price eventually recovers. They will pick up the leftovers when the markets bounce and end up with even larger amounts of crypto. For now, they may have fuelled a downwards move started by Mt. Gox.
- Rats leave the boat first.
If life gives you the ability to raise money with minimum work and zero scrutiny - have an ICO! As serious projects exploded in popularity, enjoying parabolic growth in price appreciation and market cap, the fire starts to spread - every man and his dog had an ICO for any reason imaginable. A good looking landing page and a loosely proofread whitepaper with the right those of buzzwords and graphs were enough to raise amounts of money higher than what would've been available through a traditional Ventura Capital firm for a much more sophisticated product at a more advanced stage of development.
While the price of crypto was going up most projects were happy to hold on to the large pools of crypto while their riches doubled every week - it makes sense to have all your money in crypto if you are a crypto company, right?
But as the tide starts to turn, the hundreds of ICOs with significant crypto holdings begin to cash out. In particular, the ICOs that are aware they have no product (some are an outright scam) and can not believe the luck they had in raising so much money. They know they don't deserve all that money, that there are hundreds if not thousands in that same situation and that the remarkable luck may be coming to an end. These people are cashing out as much as possible before disappearing into oblivion.
- Newbies have weak knees and no memory.
Bystanders start noticing what is going on - with such vast amounts of riches being created almost overnight, who could resist the temptation to jump in? These are the new-to-crypto-mob. The ones that helped the price reach all-time highs and the ones that enabled whales and others 'in the know' to cash out on the way down. They are not stupid - they must have known at some level that the projects in which they were injecting cash (crypto) were rubbish. However, as the cash was flowing and money was being generated left, right and centre, even the bluntest criticism such as 'that project is hopeless' would be met with 'I know, but I reckon it makes for a good flip. It's got some sexy punchy marketing...'
These are the people who knew the entire market was inflated and, objectively, their sh*t coins aren't worth much. They are cashing out, trying to capture as much of their profits (or minimise losses).
Another blend of the same species are the nouveau traders that expected to buy a 'Lambo' within months but have quite low-risk tolerance and no understanding of how the industry works.
Bright future ahead
As all the shit projects are wiped out (and hopefully locked up by the regulating authorities of their countries), and people learn a few lessons after bearing some losses, we will see a much stronger ecosystem where real, ambitious projects will enjoy exponential growth and adoption.!
Good writing!
I agree with the newbie that losing their sh!t way too easily and early.
1 more point to add, the recent Google ban on crypto ads also causing the bearish mood - I've just written an article for it.
Keep up your good effort!
Definitely the giants (Facebook, Google, Twitter) banning crypto ads is also having an effect on price.
Although it makes me wonder - are they banning to keep the bad projects out or as a way to protect themselves against some of the good projects that will challenge their existing business model and dominance?
Unless they are going to release their own cryptocurrency/blockchain product, their business shouldn't be directly impacted.
But then again, it's hard to tell what's these big players are thinking at the moment. :)
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