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Why did the crypto market crash? Many experts have offered their theories, but no one can say for sure. However, there are a few possible explanations.
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Introduction
It’s been a tough few months for cryptocurrency investors. After starting the year off on a high, with Bitcoin hitting a record price of over $19,000 in December, the market has since crashed, with prices falling by over 60% since January. So what caused the crash? Let’s take a look at some of the possible reasons.
One theory is that the crash was caused by so-called “whales” – large investors who sell off their holdings when the market is peaking, causing prices to tumble. This theory is supported by the fact that, during the crash, Bitcoin’s price fell particularly sharply on weekends and holidays when trading activity is typically lower and whales are more likely to be active.
Another possibility is that the crash was triggered by negative news stories, such as reports of hacking attacks on cryptocurrency exchanges and bans on cryptocurrency trading in certain countries. These stories may have caused some investors to lose confidence in the market and sell off their holdings.
Finally, it’s also worth noting that cryptocurrency prices are highly volatile and tend to fluctuate rapidly. So it’s possible that the market simply reached a point where too many people were selling and not enough were buying, leading to a sharp drop in prices.
Whatever the cause, the crypto market crash has come as a shock to many investors and has left many wondering whether now is the time to buy or sell. Only time will tell whether this is simply a blip on the radar or a sign of bigger problems to come for the cryptocurrency market.
The Mt. Gox hack
In 2014, Mt. Gox, a Bitcoin exchange based in Japan, was the victim of a massive hack that resulted in the theft of 850,000 BTC (worth $350 million at the time). The hack sent shockwaves through the crypto community, and the prices of Bitcoin and other cryptocurrencies promptly crashed.
The Chinese ban
When China banned initial coin offerings (ICOs) in September, it sent shockwaves through the crypto world. The price of Bitcoin, the most well-known cryptocurrency, fell sharply, and other major cryptocurrencies like Ether and Litecoin followed suit.
The Chinese ban was a major blow to the crypto market because it removed a key source of demand for ICOs. China has been a major player in the ICO market, with Chinese investors accounting for a large proportion of ICO funding.
The ban also caused uncertainty and anxiety among crypto investors, leading many to sell off their holdings. This further exacerbated the price falls.
It’s still not clear how long-lasting the effects of the Chinese ban will be. However, it has undoubtedly created a lot of turbulence in the crypto markets in the short term.
The ICO bubble
When it comes to crypto, it’s hard to ignore the ICO bubble.
ICOs, or Initial Coin Offerings, have become a popular way for blockchain projects to raise money. In an ICO, a project sells digital tokens in exchange for cryptocurrency, typically Ethereum or Bitcoin.
The problem is that many of these projects are not actually using the ICO funds to build anything. They’re just creating fancy websites and whitepapers, and then selling the tokens to naive investors who think they’re going to make a fortune.
This has led to a lot of speculation and investors getting burned when the projects fail to deliver. As a result, the ICO market has crashed, and many projects are now struggling to raise money.
So why did this happen? Well, there are a few reasons:
– The ICO market was overheated: There was too much money chasing too few good projects, and this led to a lot of bad investments.
– Many projects were based on unrealistic hype: Investors were buying into the hype without doing any due diligence on the projects themselves. This led to a lot of scams and bad investments.
– The market is maturing: Investors are becoming more savvy and demanding more transparency from projects. This is leading to fewer bad investments and more thoughtful investment decisions.
– Regulation is coming: The SEC has begun cracking down on ICOs, and this is having a chilling effect on the market. Many projects are now struggling to comply with regulations, which is making it harder for them to raise money.
The Mt. Gox bankruptcy
On February 24, 2014, Mt. Gox, a Bitcoin exchange based in Japan, filed for bankruptcy protection in the U.S. This was the culmination of a long downhill slide for the exchange, which had been beset by hacks, bankruptcies, and other problems for years.
The Mt. Gox bankruptcy is widely believed to be one of the main reasons for the cryptocurrency market crash of 2014. At the time, Mt. Gox was responsible for handling around 70% of all Bitcoin transactions. The bankruptcy filing revealed that 850,000 Bitcoins (worth around $480 million at the time) had been stolen from Mt. Gox’s servers over the years. This news sent shockwaves through the crypto community, and many people lost faith in Bitcoin and other cryptocurrencies as a result.
The Mt. Gox bankruptcy also had a ripple effect on other exchanges and businesses in the crypto space. Many stopped accepting Bitcoin as payment, and some even went out of business entirely. The crash led to a long bear market that lasted for several years.
The Bitfinex hack
On August 2, 2016, $72 million worth of bitcoin was stolen from Bitfinex, a bitcoin exchange based in Hong Kong. This event caused the value of bitcoin to drop by almost 20%. The hack also resulted in the creation of a new cryptocurrency, called Bitcoin Cash. Bitcoin Cash was created by a group of developers who were concerned about the scalability of the Bitcoin network.
The DAO hack
On June 17th, an entity calling itself “The DAO”, which had been set up to invest in Ethereum-based projects, was hacked. The attacker managed to steal around 3.6 million ETH (worth around $60 million at the time) by exploiting a flaw in the DAO’s code. This event caused a lot of fear and uncertainty among investors, leading to a sell-off that caused the price of ETH to crash from $20 to $13 in just a few days.
The Etherium hard fork
Some believe that the hard fork of Etherium may have been a contributing factor to the cryptocoin market crash. The hard fork created two different versions of Etherium, ETH (Etherium) and ETC (Etherium Classic). This caused a lot of confusion and some users lost money when they sent ETH to an ETC address or vice versa. The hard fork also made it difficult for exchanges and wallets to support both versions of the currency. This led to even more confusion and may have spooked some investors.
The Bitcoin Cash hard fork
On November 15th, 2018, the Bitcoin Cash network underwent a hard fork which split the cryptocurrency into two separate blockchain networks – Bitcoin Cash ABC (BCHABC) and Bitcoin Cash SV (BCHSV). The hard fork was the result of a disagreement between two factions within the Bitcoin Cash community over the future direction of the cryptocurrency, and in particular, over how to increase its scalability.
The result of the hard fork was that Bitcoin Cash ABC retained the name and brand of Bitcoin Cash, while Bitcoin Cash SV emerged as a new cryptocurrency. Both BCHABC and BCHSV have their own separate blockchain histories and Ledgers, and both are traded on cryptocurrency exchanges.
The hard fork also had an impact on the price of Bitcoin Cash. Prior to the hard fork, BCH was trading at around $600. However, in the days leading up to the hard fork, there was a great deal of market uncertainty and volatility as investors tried to determine which chain would emerge as the dominant one. This uncertainty caused the price of BCH to drop sharply, and it soon reached a low of around $200.
Following the hard fork, the price of BCHABC rose to around $500, while BCHSV remained relatively stable at around $100. However, in late November 2018, BCHSV began to appreciate in value quite rapidly, eventually reaching a high of $450 in December 2018. Since then, both BCHABC and BCHSV have fluctuated in value but have generally trended downwards, with BCHSV currently trading at around $80 and BCHABC around $260.
Conclusion
The cryptocurrency market crash of 2018 was caused by a variety of factors, including regulatory uncertainties, hacks, and scams. While the market has since recovered, these challenges remain and could lead to another crash in the future.
