The Bitcoin crash during the first months of 2018 has been a big disappointment for many people. A lot of us were thinking this asset would keep growing forever, but it wasn’t the case. Due to the bitcoin crash many people lost some funds, but it doesn’t mean that cryptocurrencies are a scam and shouldn’t be invested or traded in anymore.
Cryptocurrencies and Volatility
A cryptocurrency is not fake money or a scam, but it’s a virtual currency that has been involved in a lot of volatility in the last few months. To trade effectively in cryptocurrencies, it’s necessary to have a lot of experience in online trading and to have a good risk management plan in place.
What does volatility mean though? It means that in a short period, the market can have big changes when something increases or drops down in value. If the Bitcoin price grows by 4% in one day it wouldn’t cause too much change, but if it increases to 19%, which is what has actually happened in the market, this can cause volatility.
A volatile market faces many price changes in a short period, and this has been one of the reasons why people lost funds and money in their trading activity.
The Bitcoin Crash Causes
Many analysts blame pure speculation for the bitcoin crash. This means that in their opinion, the only explanation to this crash has been the fact that a few rich and powerful bitcoin owners sold their cryptocurrencies at the beginning of 2018 which caused the price to drop.
Assuming this theory to be true, it should also be looked at what caused the powerful bitcoin owners to sell their cryptocurrencies. The answer to this question is not clear yet, but for sure the new cryptocurrencies regulations introduced around the world and mainly in China have influenced traders decisions.
For instance in China bitcoin has been completely banned and the country has ruled that cryptocurrencies are not legal tender. The People’s Bank of China has also banned access to offshore crypto platforms and national cryptocurrency exchanges from 2017 onward. So naturally any remaining owners of bitcoin in China should have sold their currency already to avoid legal problems.
Besides China, any country or government that introduces restrictive cryptocurrency regulations will cause a ripple effect that will be felt in the bitcoin market. This as previously mentioned is possibly due to powerful bitcoin owners feeling the legal pressure to sell when new rules come into place. Then when leading bitcoin owners sell up, the market will reflect such a big change which can affect volatility and sharp price changes.
As well as China, many European authorities are discussing whether to introduce new regulations for cryptocurrencies and ICO in order to make the crypto world more transparent. Although nothing is official yet, these rumours which could affect the encryption element of bitcoin, which might concern many bitcoin owners who traded in this market because of the security and privacy elements of the bitcoin cryptocurrency.
What to do now?
In light of this new situation and possible future regulations, many crypto buyers changed tactic and have become cryptocurrencies traders. As with a CFD it’s possible to speculate on the bitcoin price either through buying or selling. This means that also during the bitcoin crash many traders earned some money investing on the cryptocurrency value drop.
To learn more about cryptocurrency trading and how it works, please click here.