Why did cryptocurrencies like bitcoin and ethereum fall so much? – Quartz

The price charts resemble the battlefields, with the red arrows relentlessly raining. Since the beginning of the year, the price of bitcoin has decreased by over 50%, cutting over $ 100 billion from its market capitalization. At the time of writing, Satoshi's digital gold traded for around $ 6.400 per currency, far from the $ 100,000 that some analysts expected at the beginning of the year.

And it's not just bitcoin.

For example, from the time of recording the historical high of over $ 1,400 in January 2018, the ether is equally precipitated. In the last month alone, the ether lost nearly $ 11 billion in market capitalization (equivalent to 55,000 Lamborghini Huracán). Ripple's XRP, which once hovered close to $ 4 per unit, also gave way to gravity, crashing about 90% from its January peak.

All things considered, it was a bloodbath.

It is difficult to identify a single reason for the decreases and some currencies are already bouncing off the depths precipitated at the start of this week. Here are some of the factors that market observers believe can contribute to the crypt.

ICO liquidating funds

Some have suggested that the blockchain and cryptocurrency projects could convert their ether reserves into fiat currencies to meet financial obligations. At nominal value, this seems plausible, as startups sustain many expenses during their growth phase. If a collection of companies has cleared the cryptocurrencies – mostly ether – that they generated in ICO at the same time, they could exert downward pressure on prices

Considering that some startups have raised hundreds of millions of dollars of encryption, a The only company could be responsible for a dive, although probably not of this depth or duration. While it would be easy to blame big and naive actors, many of these teams are acutely aware of their great influence on the markets and have specially designed conversion strategies to limit their impact on prices. Instead of flooding the exchanges with sales orders, they plan ahead, planning small liquidations spread over several weeks, if not months.

Even the theory of liquidation of ICO does not answer a fundamental question: why now? We have been several months since the tax season and some of the major ICOs (like Tezos) have converted their resources for a while.

Negative feedback loop

The fall in prices may reflect a negative feedback loop, a combination of economics and psychology. As encrypted investors sell their holdings, they see prices are falling. This could push them to sell even more. This is a bit like a bank run, except that investors lose confidence in the value of cryptocurrencies rather than in the profitability of a financial institution.

In October of last year, Timothy Lee at Ars Technica suggested that a positive feedback loop could be what inflated the cryptocurrency bubble in the first place. We could now see the opposite force in action.

General malaise

Cryptocurrency investors (and especially supporters of ethereum) may be disappointed (paywall) by the low use of decentralized applications (DApp) such as IDEX, Bancor and CryptoKitties. These apps work on cryptographic tokens and then generate demand for resources.

But when investors visit a cryptocurrency exchange, no information is presented on daily active users on various DApps. They are usually presented only with the price of an asset and a chart of its history. Cryptographic trading usually does not include nuanced cash flow analysis or recognizes anything other than the price of a token. Ultimately, these digital assets are worth whatever is willing to pay for them, regardless of whether they have uses beyond speculation. These days, buyers are not willing to pay as much for cryptocurrencies as they were not so long ago.

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