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Many people are wondering why the value of cryptocurrencies like Bitcoin and Ethereum have dropped so dramatically today. While there are a number of factors at play, one key reason is that Google has announced that it will ban all cryptocurrency-related advertising from its platforms. This is a huge blow to the crypto world, and it’s likely that the value of these digital assets will continue to drop in the days and weeks to come.
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Reasons for the Drop
Cryptocurrencies are digital or virtual tokens that use cryptography to secure their transactions and to control the creation of new units. Cryptocurrencies are decentralized, meaning they are not subject to government or financial institution control. Bitcoin, the first and most well-known cryptocurrency, was created in 2009. Cryptocurrencies are often traded on decentralized exchanges and can also be used to purchase goods and services.
The Bitcoin Halving
The Bitcoin halving is happening today. What does this mean? Every 210,000 blocks (roughly every 4 years), the reward for mining a Bitcoin block gets cut in half as a measure to control the supply of Bitcoin. This halving process will continue until the 21 millionth bitcoin is mined, which is estimated to happen in the year 2140.
So far, there have been two previous halvings, and both times, there was a steep drop in price leading up to the event, followed by a Bull Run afterwards. It is still too early to tell if history will repeat itself this time around.
The coronavirus pandemic has taken a toll on the global economy, and the cryptocurrency market is no exception. While the stock market has bounced back somewhat from its initial panic-selling, Bitcoin and other digital assets have not been so lucky. In fact, BTC’s price is down nearly 30% from its all-time high of just over $11,000 in early March.
So, what’s behind this sharp sell-off? Let’s take a look at some of the most likely reasons.
The first and most obvious reason is that the coronavirus pandemic has caused a widespread economic slowdown. This has led to decreased demand for all sorts of assets, including Bitcoin. With businesses shutting down and people losing their jobs, there is simply less money available to invest in cryptocurrencies.
Another potential factor is that the recent BTC halving may have also played a role. The halving, which occurred on May 11th, cut the block reward in half from 12.5 BTC to 6.25 BTC. This reduced supply of new Bitcoin coming onto the market could have led to increased demand and higher prices in the months leading up to the event. However, now that the halving has occurred, there may be less interest from buyers as they wait to see how the reduced supply affects prices.
Finally, it’s also possible that some investors are simply taking profits after Bitcoin’s massive run-up over the past year. After all, BTC is still up nearly 80% from its 2019 lows around $3,200. So, even with the recent sell-off, many investors are still sitting on huge profits. And when times are tough economically, it’s not uncommon for people to cash out their investments to help make ends meet.
Ultimately, only time will tell how long this crypto sell-off will last and how deep it will go. However, with global economic uncertainty still high due to the coronavirus pandemic, it seems likely that we haven’t seen bottom yet.
What This Means for Crypto
It’s no secret that cryptocurrency has taken a hit these past few months. Nearly every coin is down in value, and some have even been struggling to stay afloat. So, what caused this sudden drop in crypto? Let’s take a look.
The Short-Term
The short-term drop in crypto prices today is being attributed to a number of factors. First, there is the potential for increased regulation in the space. The U.S. Securities and Exchange Commission (SEC) has been cracking down on initial coin offerings (ICOs) that it deems to be fraudulent, and this has spooked some investors.
Second, there is the possibility that big institutional investors are selling off their crypto holdings. In December, news broke that the world’s largest asset management firm, BlackRock, was considering investing in bitcoin. This sent prices skyrocketing at the time, but now it looks like BlackRock may have changed its mind.
And finally, there is simply the fact that crypto prices are notoriously volatile and tend to go through cycles of highs and lows. Today’s drop may simply be part of a larger correction after the recent run-up in prices.
The Long-Term
Crypto markets have seen a lot of ups and downs in the past year, but things took a turn for the worse today. Most major coins are down anywhere from 5-10% and some are even seeing double digit losses. So, what’s going on and is this just a blip on the radar or something more serious?
It’s hard to say for sure what’s causing the drop, but there are a few possible explanations. First, there’s been a lot of negative news lately surrounding crypto exchanges being hacked and user funds being stolen. This has made many people wary of investing in digital currencies and has likely led to some selling.
Another possibility is that tax season is coming up in the United States and many people are cashing out their crypto gains to pay their taxes. This could also be contributing to the sell-off we’re seeing today.
Finally, it’s also worth noting that crypto markets are notoriously volatile and tend to go through these kinds of swings on a fairly regular basis. So, while the drop today may be alarming, it’s important to take a step back and look at the bigger picture.
In the long-term, crypto markets have shown a lot of promise and growth potential. So, while things may be down today, don’t forget that the market has bounced back before and will likely do so again in the future.
