In Brief
Cryptocurrencies experienced a major price upset coming from the weekend. The two-day price drop resulted in a 20 percent net loss for overall cryptocurrency values. As the prices recover today, let's examine what caused the sudden crash.

A Volatile World

While peaking it $5,000 over the weekend, Bitcoin joined almost every other digital coin that experienced double-digit drops in value over the past 48 hours or so, before finally recovering again today (Tuesday). Toward the end of the weekend and yesterday’s holiday, the total cryptocurrency market lost 20 percent in overall value, from a Saturday market cap of $180 billion down to $142 billion. Bitcoin was down some 16.5 percent, while Ethereum lost 23.5 percent.

cryptocurrency digital coin cryptos bitcoin
Image credit: CoinMarketCap

If anything, the two-day crash reiterates how volatile the cryptocurrency market is. As TechCrunch points out, the 20 percent drop is equivalent to years of gains in the U.S. stock market, which a budding crypto investor that decided to put his stakes in could’ve just lost in 48 hours. If you were that person, well, tough luck.

Factors Beyond Control

Bitcoin, nevertheless, came out with an overall gain (at the time of writing), retaining its doubled price compared to four short months ago. It’s still up there. Besides, a somewhat similar trend was observed in the days leading up to that dreaded hard fork.

So, what brought about this drop in the first place? There are a number of factors, foremost among them was China’s decision to ban initial coin offerings (ICOs) in the country. It’s natural for markets to take a hit whenever government sanctions are imposed; it’s not just for cryptocurrencies. With China’s decision to return all ICO funds to their investors, some uncertainty loomed over the fate of more-popular cryptos like Bitcoin and Ethereum.

Or, perhaps the market simply overheated. As mentioned, the value of Bitcoin rose to $5,000 before the crash, which could just be a natural cool-down reaction — like when a thread is pulled taut and released. Bitcoin’s history of price breakthroughs have always been followed by price drops. Besides, judging by today’s values which are already up from yesterday by 2.98 percent for Bitcoin and 6.87 percent for Ethereum (as of writing), it looks like the cryptos are already recovering.

Until the next drop, that is.

 

Disclosure: Several members of the Futurism team, including the editors of this piece, are personal investors in a number of cryptocurrency markets. Their personal investment perspectives have no impact on editorial content.