The cryptocurrency market has seen one of its largest sell-offs in recent months with Bitcoin prices dropping to $8,400, the lowest they have been since November last year. However, the question remains; Why are Bitcoin prices plunging?
Why does this matter?
Bitcoin is a classic network effect, a positive feedback loop. The more people who use Bitcoin, the more valuable Bitcoin is for everyone who uses it. And so as Bitcoin’s price rises, it becomes more and more attractive to new users and speculators—and as it falls, it becomes less attractive until its price becomes too low for anyone to justify buying it.
The market situation
Bitcoin breaches $19K; Ethereum, Shiba Inu & Dogecoin tank up to 11%. The global cryptocurrency market is experiencing its biggest sell-off in months. Within minutes on Tuesday morning, the total value of all cryptocurrencies plunged by around US$20 billion. It is unclear what caused this sudden downturn in prices but there are some factors that could have contributed. Coinbase, one of the largest exchanges for trading bitcoin and other cryptocurrencies, experienced a service outage for about an hour earlier on Tuesday which could have led to traders taking losses as a result of not being able to access their holdings.
Cryptocurrency Volatility Isn’t Going Away Any Time Soon
The historic volatility of cryptocurrencies as investments has also led to some doubts about its suitability as a currency. According to Coinbase, a bitcoin exchange and online wallet service, bitcoin's value is based on trust. It continues: The price of Bitcoin and other digital currencies are based on the law of supply and demand. When demand for these currencies goes up, so does the price.
Cryptocurrency Markets Are Still Young – Consolidation Is Inevitable
The past week has been a period of consolidation while the market is trying to break out from its current range. Coinbase, one of the largest exchanges, has undergone massive growth in recent months and was recently valued at $8 billion. For comparison, Bitfinex, one of the other largest exchanges, was only worth $600 million just over a year ago. Coinbase currently supports Bitcoin Cash (BCH), Ethereum (ETH), Litecoin (LTC), Bitcoin (BTC) and it does not have plans for any more cryptocurrencies anytime soon.
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