Why do Cryptocurrencies Fall in Price?
Main page Opinion, Cryptocurrency
Hot topic
13 September
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Let’s take a philosophic look at this: people always tend to look for a reason. For example, to understand why one asset goes down in price over another? However, for the most part, it is very hard or even impossible to establish the exact reason. And it’s also extremely difficult to discuss such reasons and to assess why it is the case. It should be pointed out, that very complex processes are taking happening all around the world. For example, one can research the impact of a growing hedgehog population in Australia on the exchange price for a dollar in Berlin. In general, this doesn’t suggest that there is any correlation, but someone could have just looked at the hedgehog population graphic and the dollar exchange rate for Germany and found a similar pattern between these two cases.

All these statistics, mathematical and technical analyses never give answers to questions and in no way can be the indisputable proof of something. To a greater extent, it just gives people food for thought. This plays right into the need of people to rationalize everything, otherwise, it would be too difficult to live in total obscurity.

Nevertheless, there are some people, who accept everything as a fact, based on their belief in something. For example, belief in God, in honesty or good-nature of a person and that gives them hope that everything will eventually be fine. There is an opinion, the future of cryptocurrencies depends on the faith of those holding the coins. And as strange as it may sound, there are many believers in cryptocurrency. There is even a crypto-project, it gives the opportunity to stake on the events, you hope will be fulfilled. For example, you want to pass your exams, you think about it, you stake on it and it probably may happen. Thoughts become things, tokenized things.

And as for crypto, it works so as well. A lot of crypto holders, who believe in the coin, try to anticipate the moment when the currency gains in value. When a lot of people think about the same thing, the odds of it happening increase dramatically.

Why do Cryptocurrencies Fall in Price?
Kipras Štreimikis/Unsplash

One thing to emphasize, it’s important for cryptocurrencies to be valuable. And it is valuable when it can provide with some opportunities, which cannot be provided by the fiat currency. This can be determined due to the number of events, exhibitions and conferences devoted to the blockchain and cryptocurrencies; by the scale of the projects based on the blockchain; the numbers of subscribed to Reddit communities, for example, Bitcoin community: https://www.reddit.com/r/Bitcoin/; statistics of market capitalisation, transactions: https://bitinfocharts.com; request number on the web search engine: https://trends.google.com. So, it provides us with an understanding, that if people look for information, the faith in coins is there, it truly exists.

So why the cryptocurrencies rate falls? First of all, it can be correlated with the loss of faith. When people start distrusting in the coins, for any reason they can change their point of view, their interests change, they unfollow community, search less information about it, write less posts in social media, from this moment it can be a reason of falling the currencies’ rate. And it is hard to predict what happens first? Either the cryptocurrencies’ rate falls and then people lose the faith, or people lose the faith and then the cryptocurrencies’ rate falls. It is like the eternal question: «Which came first: the chicken or the egg?»

Another issue to take note of is that there are a lot of scam ICO projects. Groups of people raise money from investors, promising to put together a smooth implementation of which would result in thousand-fold growth of the price of the token. Just do a quick search through news on how many To were actively promoted in a press but ended up in failure. And try to finding something real and successful projects.

Why do Cryptocurrencies Fall in Price?
OleksSH / Shutterstock.com

On the hyped up wave, people tend to believe in things, that they never would otherwise. Сompanies, which run ICO attracted a huge amount of capital into cryptocurrencies. Of course, it led to the growth in offered coins’ or tokens and the price of coins of blockchains that were actively used by other ICO’s - ethereum being the best-known one. But then came to the correction of the cryptocurrency market and the house of cards began to crumble. When the market is in decline, only the real businesses stay alive but SCAMS go down with a dramatic flare.

There are several types of businesses: the ones, which spend a lot of money on marketing and have almost no real accomplishments behind their belt, and others, that do get things done but scarcely spend on marketing, of course, there should be a balance. The first ones on the market, get the income and are repaid in full when sales volumes increase to a certain level. But initially, they may earn very little at all, and exist only thanks to their generous investors. For example, Uber, which allocated a ton of money for marketing, provided free rides for clients and different bonuses for drivers. Their project grew exponentially, enticed more and more investors, but made no profit. In this case, we see the product, but there are some businesses, which undertook a similar development path and behind an impressive marketing smokescreen had neither a product nor the developments. The only value such a company holds are usually the databases of contacts, which can be sold many times over. Once you join such a company as a customer or an investor, your personal data spread everywhere.

So, most ICO projects look the same, young (and not) people felt there was an opportunity for easy pickings, as it was promised that waterfalls will flow upwards and mountains will run sprint races at the Olympics. It is very captivating that no one holds any real responsibility for failing to fulfill those promises. All is being propped up by a concept of trust as the huge marketing machine was turned up. People didn’t really know what they invested their money in. Those who invested, have placed a bet on the trust in famous people, and were satisfied with their tokens growing in price at an initial stage. Engaging more investors led to the grows of tokens popularity - due to high demand, but suddenly it began to crumble as the market correction began. People had realized, that the project wasn’t investing in as there is no profit. And so the expected investors are trying to sell emissioned coins - a classic case of high supply and low demand.

Additionally it was also revealed, that some companies did nothing, but still got money from investors. The Instagram pages of these companies CEO’s reveal, that the money was spent on expensive cars, apartments and luxury life. It affects the ICO’s coins and of course the blockchain which is used being it ethereum or any other one. The heads of such companies are now moving their assets out of crypto, because its exchange rate to fiat fell in price, but the price the luxuries they want to obtain is unfortunately for them, is still listed in fiat. And as we know, the more people sell on the market, the more the price falls.

The third way to explain the fall in prices is the vanishing of decentralization. This point is to people, who believe in crypto. Initially, many people did not like that, and nobody has an influence over it. But it was one of the core values that cryptocurrencies could in fact provide. How does it happen? Take a look at Zcash: this coin was very popular among people, who mined at home on their GPUs, especially at times when it was most profitable. And even financial specialists rated this coin, though they are less good at mining. So, many people mined it, followed the community, shared the info about it with friends on social media and so the popularity of Zcash was on the rise thanks to word-of-mouth advertising. And suddenly the price of this coin drops on the backdrop of the falling market. People stopped mining the unprofitable coin.

In addition, a lot of ASIC-miners have appeared through which one can obtain altcoins. It means that large companies appear that take on a huge percentage of the mining share. Manufactures such as Bitmain start mining for themselves, they don’t instantly sell their tokens. And the statistics form the pools’ show us, that ASICs start replacing the hash rate, that was initially based with the GPU miners. So, mining activity is taken over by specific firms and therefore stops being profitable for those mining at home, people switch off their mining farms, sell off their coins and the community begins to disperse.

Adjacent to this facts, people’s faith also begins to decrease which might have led to the fall in the price of Zcash even more, than for all other cryptocurrencies. That is why Zcash’s net isn’t so active as it was before. And the developers failed to release a hard fork to make this coin ASIC - resistant or maybe they just missed their chance to do so on time to prop up the public faith in the coin. On another hand, there are many coins such as Monero, which went through similar development stages, but its developers have released an ASIC - resistant algorithm and prevented the balance of mining, people kept faith in the coin.

Everything described above is just a logical chain of reflections and it can relate to other coins as well, but it is on to understand, that all coins are different. But at the same time, here’s the bitcoin, which simply defies any rationalizations. There is no privacy as this coin has been conditionally centralized spread mining for a long time now. Manufactures first of all set up their ASIC machines to best-known themselves and only then sell them to it It is. And the big corporations mine a considerable amount of it and yet it steadily grows in price.

Bitcoin doesn’t follow any rules, when everyone expects it to grow, it falls, when everyone thinks, that it will fall, it's price skyrockets. Besides, if we contemplate the emphasize of the whole crypto market, we can notice one interesting fact: a lot of new coins appears, but bitcoin’s market dominance percentage has not been affected much during the past few years. Many people think that its connected to the strong faith bitcoin followers have in the coin. And as long as people consider that this coin is valuable, it will be so. One can discuss the causes of this fact a good while, but you’ll never find a true answer.

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