Sometimes known as the’ king of cryptocurrency’, Bitcoin hit the market back in 2009 and has remained the world’s largest (and most expensive) cryptocurrency ever since. But investor confidence fell last week as the combined value of Bitcoin, Ethereum, Litecoin, Ripple XRP and Chainlink all suffered a staggering $ 50 billion.
The cryptocurrency market is incredibly volatile, so this level of change – albeit discouraging – is not unprecedented in the industry. In this article, we will examine exactly why this crash occurred. Whether you’re an experienced investor or someone looking for their first entry into cryptocurrency, read on to learn more.
What Caused Bitcoin To Crash?
This month has not been bad news for crypto markets. In late October, the price of Bitcoin soared by 60% after PayPal announced it would add the ability to pay with cryptocurrency to its platform. The rise in price meant Bitcoin began to move closer to $ 20,000, the all-time high it hit in 2017 but never achieved again.
This upward trend has convinced many investors that Bitcoin will reach – or even exceed – an all-time high. However, the crypto market is generally nothing short of stable, and the rate of change Bitcoin experienced in such a short period of time has ultimately proved unsustainable.
The price of an asset depends on supply and demand. As more and more investors rushed to add Bitcoin to their portfolios, demand skyrocketed before returning to the world. As it did so, the price came back, causing a sudden drop in value.
This explains why Bitcoin is depreciating, but why is Ethereum Ripple XRP, Litecoin and Chainlink following the trend?
According to analysts, the so-called ‘Bitcoin effect’ is a common phenomenon in the cryptocurrency market. Since Bitcoin is the first cryptocurrency, most crypto investors hold BTC and the altcoins of their choice. As confidence grows in bitcoin, this is down to various other assets – notably Ethereum and Ripple (both of which are among the world’s top five cryptocurrencies by market capitalization).
If Bitcoin value grows or decreases rapidly, it sets the tone for the market as a whole. This means that other cryptocurrencies are likely to follow the trend in the price table.
Another important factor that can affect the price of Bitcoin and other cryptocurrencies is the media. There is a strong correlation between the number of mentions an asset receives online – especially if they come from well – known analysts or crypto companies-and its performance in the market.
Bitcoin’s recent rise accelerated when an executive at Black Rock, the world’s largest asset manager, told CNBC that BTC would one day replace gold. Bitcoin has long been referred to as’ digital gold’, but this comment from a respected figure has sparked growing investor interest.
Similarly, as soon as people started noticing that the price of BTC had stopped rising, that interest began to fall. A crisis of confidence caused demand for Bitcoin to fall further, resulting in a total loss of $ 50 billion from the cryptocurrency market.