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Hackernoon logoGood things to learn from Bitcoin Bleeding by@vamshi

Good things to learn from Bitcoin Bleeding

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@vamshiVamshi @ BearTax

Co-founder of BearTax

As we’ve been observing since few days — Bitcoin and other cryptocurrencies are on a downtrend. Here we analyse few possible reasons, how market could react, effects on altcoins and what could happen next.

Photo by Tim Gouw on Unsplash

Why Bitcoin is going down?

There’s no single reason for why bitcoin is on a down trend. Multiple reasons including many new people buying bitcoin at premium prices with mere speculation has actually taken prices to all time highs. Proper traders who analyse and follow the fundamentals would have stopped buying as soon as it crossed 11K and might have just traded to grab some quick profits.

Now that all beginners have done buying — demand has fallen and as per basic rules of demand/supply — when there’s no one to buy at high prices, it is ought to fall down. That’s what been happening when it retraced from 19K to 16K and then to 15K and then oscillating between 13–15K; 10–12L; 9–10K and finally hitting the new lows today at 7K.

As the price is falling down, there’s no scarcity for bitcoin bashers to pass on various comments and media misinterpreting official statements from governments and many more events have eventually led to the decline in price.

Why all other altcoins going down?

Alternative cryptocurrencies or generally called as altcoins — which are either created as tokens on ethereum platforms or have their own blockchain and aiming to build the next bitcoin or next ethereum — whatever may be the value they are providing, everyone’s on same down trend and charts look more or less the same.

Reason for this mainly is they are all traded with one base coin and that is the king Bitcoin! Almost all of the major exchanges trade other coins with BTC pair. That means people ought to have bitcoin to trade other currencies. When bitcoin falls down, people panic and sell(not experienced traders but many others) or some people just convert their alts back to bitcoin to be safe. This results is further fall in demand for altcoins and they will go south.

That’s why most of the altcoins have same chart pattern as bitcoin.

WTF is a correction?

Ah! this is a favorite term for many experienced bitcoin investors, believers and traders. Correction is something you see after a massive and exponential increase in value of anything. This generally happens as the commodity or asset could have been overvalued due to hype and overbought by people. When it reaches that point, when there are no speculative buyers — price starts to drop until it finds support(substantial demand at a given price).

For every mad run based on pure speculation have to see a downturn because it’s not the actual price of that asset. When hype ends, price has to come back to a reasonable value and this is called correction.

Correction could also lead to panic sells by few amateur investors as they will be scared of losses and sell more. Not just panic sells, they could in turn trigger stop loss orders and bring the price even more down — this situation will lead to oversold state and will be a good buying opportunity. That’s why after every healthy correction, there will be an uptrend.

Series of events leading to this

Along with the correction happening, as soon as the fall of some asset starts — various negative events will be highlighted and would make it to news either true stories, fake news or some misinterpretations — which will lead to more panic and cause sell offs.

Some of the recent events are as follows:

How can it get better?

Like hype, negative vibes also won’t last forever!

There are good amount of experienced wall street traders, hedge fund managers and their analysts, professional traders who trade by believing in patterns, mathematics and fundamentals. All of these guys will be calculating what’s the right price based on all of the above factors and will have their orders ready to buy in. This is called as support — a right price for the asset, good amount of actual demand(supported by analytical and fundamental theories).

Once it hits this price (could be 6500 or 5700 or anything). There would be a reversal. For this, whole mindset of the investors has to change. It comes by these analytics as well as market perception. This can be catalyzed by few whales(huge investors who can move the whole market).

Will Altcoins rise along with Bitcoin?

That’s a good question! There are couple of possibilities for this

  • Altcoins would rise proportionally if the price of bitcoin rises steadily. Because steadiness in bitcoin prices brings more new investors to Bitcoin, they will in-turn look for more profitable projects on blockchain or just greedy investments and demand for altcoins rises.
  • If Bitcoin rises too fast, most of the bag holders(who bought altcoins at high prices) will sell their altcoins for Bitcoin to get on bitcoin’s bull run, which will reduce demand for altcoins — this situation will make them go down even further (this happened in November when it ran up from 7K to 19K)
  • Another scenario for Altcoins to rise is Bitcoin stabilizing at certain price. When bitcoin stabilizes, people who already bought at higher prices will look for alternative cryptocurrencies to maximize their profits and demand for those good projects and sometimes fake pumps increases and their prices shoots up.

Give current situation of bear market, it could go in any way. Every one needs to stay vigilant, keep an eye on news and events across the world and make wise decisions to make knowledgeable investments

Avoid Fear of missing out and don’t sell in Panic — both are bad for your investments and incur more losses. Read more here.

Disclaimer:

The content of this article is not intended as investment advice. I am describing my experience, knowledge acquired and using them as examples. You should always do your own research (DYOR), make your own decisions (MYOD) and be comfortable with the risks before making an investment. Investing in volatile cryptocurrencies involves an element of risk: prices of these currencies go up and down, (often in a manner that seems irrational). Never invest more than what you can afford to lose.

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