Last few days we saw huge dips in market capitalization and the prices of major cryptocurrencies. It was strange, because there were no bad news that would cause a panic. Seemengly out of nowhere prices started droping. So what tumbled the market and caused the following panic sale?
How did this happen
Coinmarketcap is the most popular site for cryptocurrency statistics and graphs. They bring incredible price calculation averaging on all markets across the world. A lot of people use the site to monitor what is happening with the cryptocurrency world. Why am I saying this?
Well, Coinmarketcap managed to tumble the market, only by changing one thing in their coin price calculations. They removed Korean exchanges from the calculation. All coins are about 30% more expensive out there and also a lot of exchanges over there were with far higher volume. By excluding them from the price calculation they instantly tanked the averaging prices on Coinmarketcap’s graphs.
People wake up and see massive red all across of Coinmarketcap, it creates a snowballing panic response. Panic selling is not always the answer, but people want to protect their money. Bots also saw the huge instantaneous drops and panic sold across the whole market when nothing had really changed.
The market never sleeps. It is open 24/7 and random things happen real fast. People can’t always recognize what is actually happening and that there were not any big selling on the western exchanges. The false impression that coins are crashing makes people dump large amounts of coins to cut losses.
What will happen next?
I expect that the markets will normalize and the dumps will stop, when more people learn about this. The panic selling will end and then everything will continue as normal. Should we expect that the prices will skyrocket again? Well, nobody can say for sure, but the good news is, that there is no bad news.
All of this could have been handled so much better and easier by Coinmarketcap, if they have just put a banner out saying that they excluded Korean exchanges and that this will influence the price calculation. Let’s hope that incidents like this don’t happen again at random points in time.