Cryptocurrency prices are down and have been free falling since January 16th. A massive correction is taking place everywhere. Everything in top 10 lost up to 50% value. Massive red flags can be seen down to the top 100 cryptocurrencies by market capitalization. The total market valuation declined from 700$ billion to under 440$ billion in a 48-hour window. The market is still unstable and a lot of support has come to recover it. As of now prices are slowly going up and the market cap climbed back to over 570$ billion. What happened these last few days? Did the bubble burst or was it a two day Black Friday sale?
Why are the prices down?
The massive correction started January 16th. The market lost over 100$ billion in evaluation in just few hours. Massive selling was felt everywhere and prices plummeted all across the board. For a 48-hour window the market lost nearly 250$ billion dollars in valuation. There are few reasons for this.
It is not correct to solely justify these recent events with the trading ban in China and South Korea. But these Asian countries are a big part of what is happening and have a big impact on the markets. South Korea is one of the most active participants in the cryptocurrency market with the third biggest volume in the world after Japan and the United States.
China is also home to many cryptocurrency miners and enterprises that utilize cryptocurrencies and blockchain technology. China did ban cryptocurrency trading and ICOs in September 2017. What followed was a correction similar to the one we are experiencing now. The price of Ethereum did drop with more than 30% when that happened. Now the Chinese government is looking to expand on the regulations of September, but there is little information on what they are aiming for.
There were increasing speculations that South Korea will ban cryptocurrency trading. Government officials came out with conflicting statements. Some said that regulations are coming. Others, like the Financial minister Kim Dong-yeon, stated that the government is trying to regulate and clamp down “the irrational cryptocurrency trading craze”.
Given that the Korean market has a large percentage of the whole cryptocurrency trading volume, what happened next was somewhat expected. They have caused a massive panic and selling across the Korean markets. Because of these conflicting statements coming out from Korea, we will have to wait and see how things will resolve.
Is it quiet before the storm?
Many investors are currently concerned about the state of the market because of this major correction. But these kinds of things are not uncommon around here. Cryptocurrencies regularly experience 20-30% ups and downs in prices and major corrections have happened before. It will not be the last time.
Other investors are thinking the opposite. They are not concerned, they are excited. Some people are seeing these corrections like a Black Friday for cryptocurrencies and an opportunity to buy some at incredible discounts. A lot of support has come at the lows and things are starting to stabilize.
Another interesting point of view is that massive corrections happen every year around the Chinese New Year. Data and statistics show that what we have experienced these few days has happened before. Are these massive collapses just a cash out for the new year?
My opinion is that it surely it is quiet before the storm. Data analysis from 2015 on Bitcoin shows that every year Bitcoin sets a record low in the middle of January. These statistics can tell us that this correction is not something new. It has already happened three years in a row at the same time of the year. But what happens next is a bounce back and a healthy market.
Was the recent correction overdue?
To be clear this is not the biggest correction cryptocurrencies have seen. It is not the first and it will not be the last. When the market valuation of cryptocurrencies surpassed 500$ billion in mid-December, Ethereum creator Vitalik Buterin made a very interesting statement.
He said that he is personally concerned with the enormous valuations of most of the projects within the market. He questioned the 500$ billion market cap and if the projects within the crypto market have done enough to justify this valuation. Vitalik Buterin did emphasize that Bitcoin and Ethereum have definitely provided enough services and value to the public, but they have not done enough to earn these market caps. Similar statement was done by other Ethereum co-founders like Charles Hoskinson who is also the founder of Cardano.
Major corrections are healthy for the market and the ecosystem. If +40% in a day seems normal to you then massive corrections should be the same way. The market is overflowing with projects. There are a lot of great cryptocurrencies and concepts in the market, but there are a lot that have zero purpose or substance. There are even projects that sell coins without even having a blockchain. Things are starting to even up now and the market is recovering. I think that when the dust settles the market will be healthier than ever before.
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