Many factors likely contributed to the recent crypto crash, including over-leveraging, FUD, and whales selling off. Let’s take a closer look at each of these factors and see how they may have contributed to the market sell-off.
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It’s been a tough week for cryptocurrency investors. After months of steady gains, digital currencies took a nosedive, with the total market value of all coins falling by more than $600 billion over the past seven days. The sell-off was sparked by concerns over regulation and a possible crackdown on exchanges in South Korea—one of the world’s biggest markets for digital assets.
The sell-off continued on Tuesday, with Bitcoin—the largest and best-known cryptocurrency—falling below $11,000 for the first time since December. Other major coins also plunged, with Ethereum, Ripple, and Bitcoin Cash all losing around 20% of their value.
The crash has wiped out billions of dollars in gains that investors have made since the start of the year. Bitcoin is now down around 30% from its highs in mid-December, when it was trading at close to $20,000. Ethereum is down even more, losing around 50% from its January peak.
While there’s no obvious reason for the sell-off to continue, it’s likely that we haven’t seen the end of the volatility yet. So if you’re thinking about buying into the cryptocurrency craze, be prepared for some wild rides in the weeks and months ahead.
The Mt. Gox Hack
Mt. Gox was a Tokyo-based cryptocurrency exchange that launched in 2010. It quickly became the largest exchange in the world, handling over 70% of all BTC transactions at its peak. However, Mt. Gox was also plagued by hacks and security breaches, culminating in a massive theft of 850,000 BTC in 2014 (worth $473 million at the time). The hack caused a tremendous amount of damage to both the exchange and the crypto community at large, and is often cited as one of the key reasons for Bitcoin’s prolonged bear market in 2014 and 2015.
The Chinese ICO Ban
In September, the Chinese government banned Initial Coin Offerings (ICOs), a new form of fundraising in which startups issue their own digital tokens in exchange for cryptocurrency. This sent shockwaves through the crypto world, as China is home to a large percentage of both ICOs and Bitcoin miners.
The ban was likely motivated by concerns over fraud and financial stability, as many ICOs have turned out to be scams, and the rapid rise in cryptocurrency prices has led to fears of a bubble.
The ICO ban caused the prices of many major cryptocurrencies, including Bitcoin, Ethereum, and Litecoin, to crash. The price of Bitcoin has fallen by nearly 50% since September, and the prices of Ethereum and Litecoin have both fallen by over 60%.
The Bitcoin Futures launch
One of the major reasons behind the crypto crash was the launch of Bitcoin futures by CME and CBOE. Bitcoin futures are financial contracts that allow investors to bet on the future price of Bitcoin. Essentially, these futures contracts allow investment in Bitcoin without actually owning any Bitcoin.
When the futures contracts were launched, there was a lot of speculation about how they would affect the price of Bitcoin. Some people thought that they would cause the price to go up, while others thought that they would cause it to go down. As it turns out, both groups were correct.
When CBOE launched its Bitcoin futures contract on December 10th, 2017, the price of Bitcoin immediately shot up to $20,000. This was because investors were buying up Bitcoin in anticipation of making a profit when they sold their futures contracts. However, this also meant that there was a lot of selling pressure on the market, which caused the price to crash soon after it hit $20,000.
The same thing happened when CME launched its own Bitcoin futures contract on December 18th. The price shot up to $19,000 before crashing back down again. This time, however, the crash was even more dramatic, with the price plunging all the way down to $12,000 within a matter of days.
The Mt. Gox Sell-Off
On February 24, 2014, Mt. Gox, once the world’s largest Bitcoin exchange, filed for bankruptcy in Japan. The company claimed that it had lost 850,000 Bitcoins (worth $473 million at the time) to hackers. However, 200,000 of those Bitcoins were later found in an old-style wallet on the Mt. Gox website.
The hack and subsequent bankruptcy filing caused a crash in the price of Bitcoin and other cryptocurrencies. The price of Bitcoin fell from a high of $1,147 in December 2013 to a low of $360 in January 2015. Other cryptocurrencies also experienced sharp losses during this period.
Mt. Gox was not insured against losses and many users were never able to recover their funds. The hack also raised questions about the security of other cryptocurrency exchanges and led to increased regulation of the industry.
The South Korean Exchange Hack
Early in 2018, the South Korean exchange Coinrail was hacked, and approximately $40 million worth of altcoins were stolen. This was one of a string of hacks that occurred throughout the year, and it helped to create a sense of insecurity among investors. In addition, the South Korean government began to crack down on cryptocurrency trading, causing even more uncertainty.
The SEC’s Crackdown on ICOs
The U.S. Securities and Exchange Commission (SEC) began cracking down on initial coin offerings (ICOs) in late 2017, and the effects of this regulatory crackdown are still being felt in the cryptocurrency market today.
An ICO is a funding method used by startups to raise capital by issuing digital tokens in exchange for investments. The problem with ICOs, from the SEC’s perspective, is that many of them are conducted without following proper securities laws and regulations. This means that investors may not be fully protected, and they may not be getting all the information they need to make informed investment decisions.
In December 2017, the SEC issued a report warning that ICOs may be subject to securities laws. This was followed by a number of high-profile enforcement actions against ICOs, including one against famed boxer Floyd Mayweather Jr. for his involvement in an ICO scams.
These enforcement actions sent a strong message to the market that the SEC is serious about regulating ICOs, and this contributed to the crypto crash of 2018. When investors started to lose confidence in ICOs, they pulled their money out of the market, causing prices to drop sharply.
The SEC’s crackdown on ICOs is likely to continue in 2019, and this could further destabilize the cryptocurrency market. If you’re thinking about investing in an ICO, be sure to do your own research and consult with a financial advisor first.
The Google Ad Ban
The Google Ad Ban was one of the main contributors to the crypto crash. When Google released its ban on cryptocurrency advertising, the prices of Bitcoin, Ethereum, and other major digital currencies took a nosedive. The Google Ad Ban was a huge blow to the crypto industry because Google is one of the largest advertising platforms in the world. The ban was a major setback for crypto companies who were looking to reach a wider audience through online advertising. The ban also made it harder for people to find good information about cryptocurrencies and made it easier for scammers to take advantage of investors.
The Facebook Ad Ban
Last week, Facebook announced that it would be banning all cryptocurrency-related advertising on its platform. This sent shockwaves throughout the crypto industry, and many believe that this was the trigger for the massive sell-off that caused prices to crash.
Facebook has been one of the most important channels for crypto companies to reach potential investors. With over 2 billion active users, it is by far the largest social media platform in the world. The ad ban will make it much harder for crypto companies to reach new investors, and this is likely to have a negative impact on prices.
The Facebook ad ban is just one of several factors that have contributed to the recent sell-off in the crypto market. Other factors include regulatory uncertainty, negative media coverage, and weaker than expected demand from institutional investors. However, the Facebook ad ban is likely to have been the most important factor in triggering the recent sell-off.
In the end, it is hard to say definitively what caused the crypto crash. Most likely, it was a combination of factors, including regulatory uncertainty, negative press, andmargin trading. Whatever the cause, the crash showed us that the cryptocurrency market is still young and volatile. While there may be some bumps along the way, it seems clear that cryptocurrencies are here to stay.