Fears of a crackdown by governments throughout the globe have resulted in a slaughter in cryptocurrency markets. Except for Tether (which has parity with the US dollar), all other cryptocurrencies were in the red and had lost significant value. At 14:19 UTC, the global market worth for cryptocurrencies had fallen to $566.2 billion, a 20% drop from the previous day’s value.
It dropped to $536.5 billion at one point Wednesday morning, a 30% drop from the previous day’s pricing. A single bitcoin cost $11,825.70, a 17.27% decrease from the previous day’s price.
As of this writing, Stellar and Ripple were the largest losses among the top ten most-traded cryptocurrencies, falling by 26.19% and 25.18%, respectively. As the graphic below demonstrates, the overall decreases are not uniform. Despite today’s losses, three cryptocurrencies are still selling at a premium to their year-ago prices.
Government Crackdown Spurs Declines
The threat of a crackdown by governments in China and South Korea, two of the most important trading places for cryptocurrencies, has been identified as the key cause for price drops. South Korea vowed to prohibit bitcoin trading last year, but reversed its position on Sunday. Yesterday, on the other hand, was a different story. In a radio interview, South Korea’s finance minister said that shutting down cryptocurrency exchanges was still a possibility, but only after “serious consideration.”
After outlawing cryptocurrency exchanges in 2017, China is now tightening down on alternative places for digital currency trade. According to Bloomberg, “the government aims to ban local access to indigenous and offshore systems that facilitate centralized trading.” However, the paper does not define or offer instances of such platforms.
South Korea, behind Japan and the United States, is the world’s third-largest cryptocurrency trading destination. Ripple and Ethereum, the world’s second and third most-traded cryptocurrencies, have seen significant price increases as a result of trading on Bithumb, South Korea’s biggest exchange.
According to Kerrie Walsh, an assistant economist at Capital Economics, government actions have “certainly unsettled” investors. “The more popular Bitcoin grows, the more probable harsher laws will be imposed,” she added.
Bitcoin Price Manipulation Flashback
Even when the price of bitcoin falls today, it is important to maintain perspective.
A new research in the Journal of Monetary Economics explains how two bots managed by a single individual increased the price of bitcoin from $150 to $1,000 in two months on Mt. Gox, an exchange that failed in 2013.
The study claims that about 600,00 bitcoins worth $188 million were “fraudulently obtained.” Its creators discovered that trade volumes increased when Markus and Willy, the two bots, were present. The surge attracted more, human investors, resulting in a virtuous loop that pushed up prices via false demand. The exchange made money by keeping the transaction fees. Not unexpectedly, the authors of the report assert that narrow markets (or markets with insufficient liquidity) made manipulation easier.
Today, a similar scenario prevails. There are now 1,385 cryptocurrencies in circulation, and trade volumes, even for the biggest cryptocurrencies, are prone to rapid increases and drops. While numerous theories for bitcoin price movement are advanced, none of them is demonstrably consistent. Bitcoin whales and automated bots are still active participants. More investors, particularly institutional investors, will provide liquidity to bitcoin markets and help to stabilize its price. Increased government regulation should also assist to mitigate the impact of automated trading on the price of bitcoin.
Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is very dangerous and speculative, and this article is not a suggestion by Investopedia or the author to do so. Because every person’s circumstance is different, a knowledgeable specialist should always be contacted before making any financial choices. Investopedia makes no guarantees or warranties about the accuracy or timeliness of the information provided on this site. The author holds a minor quantity of bitcoin as of the day this article was published. It’s unknown whether he owns any additional bitcoin forks.
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