What caused the decline in the cryptocurrency exchange rate

What caused the decline in the cryptocurrency exchange rate

The cryptocurrency market is extremely volatile, and it is quite normal for a coin to lose 20-30% of the exchange rate in a day, and then rise by 40% in the next trading session.

The larger the capitalization of a crypto project, the smaller the fluctuations in the exchange rate are observed in the market. This is true for the TOP 10 cryptomonets in the world, including Bitcoin and Ether.

However, minor fluctuations for BTC, even a few percent, can be disastrous for other altcoins, since the “cue ball” largely reflects the mood of investors and investors.

Therefore, today we will talk about why the well-known coin has lost in price, how it has affected other crypto projects, and what to expect next.

Sit back, it will be interesting.

Background and current market situation

To begin with, most coins are not backed by anything, just like the dollar. If earlier fiat currencies had a gold standard, and everyone could exchange a coin for a gold share, then in the last century this was abandoned.

Cryptocurrency, being a digital means of payment and an investment instrument, is not backed by anything. Of course, there is capitalization – this is a cash reserve that is formed by selling coins to investors who expect to make a profit when the value of the asset increases.

But when it “smells fried”, most will sell coins at any price to return at least some money. Exactly the same thing happened a few days ago with Bitcoin.

It would seem that the most famous coin with a huge capitalization, it recently seriously collapsed, but began a rapid rise. Everyone expected a new peak after the adoption of a bill in El Salvador that officially recognized BTC as a means of payment.

BTC, estimated at $37,000, rose to $53,000 in 3 months against the background of favorable news. However, when “D-Day” came, the value of Bitcoin went down sharply, as many “buy rumors and sell news”.

There are a lot of reasons for the fall. However, the general situation was also aggravated by the excessive share of borrowed money when working with BTC. On most cryptocurrency exchanges, you can trade with x100 leverage. This means that a trader who owns 0.1 BTC can trade 10 BTC. Leverage is fun when the market is growing, and you can profit from a bull market without much risk, but when the market is rolling down, everyone is not so happy anymore. The game with leverage on exchanges is based on the size of the “multiplication”, the larger it is, the smaller the exchange rate fluctuation is necessary for the trading platform to take all your coins to pay off debts and stabilize their finances. And your 0.1 BTC is burned.

When the collapse of Bitcoin just began, the exchanges began liquidating the assets of investors playing long. A snowball formed, which increased in size every hour – the fall was a signal for many to sell BTC in order to save some money, this led to the liquidation of long positions, and sales on the market increased.

Therefore, it is not surprising that on September 7, Bitcoin collapsed by 16%, which led to a decrease in capitalization by $300 billion.

Such an event could not pass without a trace for other market participants, so let’s consider the consequences of the collapse on other altcoins.

Consequences of the fall of the crypt

Indeed, the fall of Bitcoin could not pass without a trace for other market participants. Therefore, let’s consider what happened to large holding companies and cryptocurrency projects.

For the convenience of perception, we will divide the further narrative into several logical blocks.

Influence on major players

Let’s look at some vivid examples of how the devaluation of BTC affected companies.

MicroStrategy

Among public companies, this software developer becomes the largest holder of cryptocurrency assets. The company has 109,000 BTC. After the decrease in the value of the coin, the total price of crypto reserves decreased to $5.02 billion. The share price also fell by 10% to $638 apiece. However, the situation has somewhat improved after a small recovery of Bitcoin.

Tesla

Elon Musk’s company actively buys and sells BTC, playing on the difference in exchange rates. So, in March, Tesla received $100 million of net profit from trading operations.

At the time of writing, the company has 43,000 BTC. Due to the fall of the coin, the value of Tesla shares decreased by 1%, and the value of cryptocurrency assets decreased by 10% to $1.99 billion.

Square

The company of the founder of Twitter has 8,000 BTC in the “bins”. Due to the decrease in the value of the asset, Square shares fell by 2%. According to the financial report, the company invested $3.5 billion in Bitcoin in 2021.

Marathon Digital

This is a mining company that owns 5.4 thousand BTC. During the day, the value of assets fell by 10% to $274.4 million. The share price also fell by 7% and is trading at $39.

As you can see, all companies have lost the profitability of investment instruments, and the share price has decreased. Of course, this is a temporary phenomenon, but nothing pleasant for investors. Let’s talk about cryptocurrency projects.

Impact on altcoins

Bitcoin fell by 16% on September 7, and fell to the level of $42.8 thousand per piece. Such a sharp drop could not ignore altcoins. Statistics say this: when the cryptocurrency market is growing, investors are more willing to invest in coins, trying to make a profit, when everything “goes not according to plan”, people withdraw money and invest it in more stable instruments, trying to protect capital. This also happened with altcoins. Let’s look at the most striking examples.

Ethereum

During the day, the price of Ether fell by 15%, and the altcoin was trading in the evening at $3,900 apiece, and the next day the price continued to decrease to $3.3 thousand. Such a drop is quite significant, given the historical maximum of the coin in May (more than $4,000 for 1 ETH).

Cardano

During the day, the price of the coin decreased by 19%., the capitalization of the project also fell (to $73.9 billion). Recall that on September 2, the Cardano coin recorded a historical maximum. Then the token rose by 119% to the $3 mark with a capitalization of $ 100,000,000.

Ripple

The exchange rate of the coin fell by 25%, and dropped to $1 per unit. The capitalization also fell to $49.4 billion. However, all experts are talking about the imminent recovery of the digital asset, since Ripple is about global money transfers and a cryptocurrency exchange point. Therefore, the platform has no end of customers.

Solana

In this cryptocurrency project, the value of the token decreased by 19%, as well as the capitalization (up to $ 45.1 billion). Now the coin is traded on exchanges for $154. Experts also claim that the asset will go up due to the specifics of Solana’s work, which is aimed at supporting the scalability of decentralized applications.

How to react to the fall of the digital currency

Most investors, having learned from the news about the fall of the cryptocurrency market, immediately rushed to sell their assets in order to withdraw their capital from the blow, which has already suffered.

However, an impulsive decision, with a high degree of probability, will turn out to be a mistake, because investors have already lost a lot on the exchange rate difference.

Experienced traders understand that everything is cyclical in the market, and there will always be a recovery behind the fall. Therefore, now is the perfect time for them to buy cheap coins to get a great profit in the future.

What the future holds for cryptocurrency

Bitcoin will begin to recover after another fall, as investors will start buying the digital asset again. The same thing will happen with other altcoins. This has already happened many times, and it is quite strange that people do not understand the cyclical nature of what is happening.

At the same time, high volatility can play into your hands if you do not succumb to general panic, and know exactly what to do. So, you can use your free capital to buy cheap coins that have fallen in price, and get a big profit after the market recovers.

Therefore, do not follow the crowd, always approach investing and trading with a cold head. Then success is guaranteed for you, which is what we wish you!

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26.11.2022, 17:55