The price of all major cryptocurrencies came crashing down on Tuesday, following a steady dip from the start of the year.
Bitcoin fell from $18,000 to around $6,000 in a month, while Ethereum also lost a large portion of its value.
The mini-crash has caused cryptocurrency investors to worry about the future of their holdings and speculate as to the cause of this steady decline.
The cryptocurrency market is still valued far higher than it was six months ago, however, and new investors are the most affected by the falling value.
While the cryptocurrency market is inherently volatile and difficult to predict, there are numerous theories circulating online about the recent crash.
From worried investors to market analysts, interested parties have posited their ideas – including market manipulation, regulatory concern, and panicking investors.
Bitcoin and other cryptocurrencies have been hammered by regulatory decisions recently, which could have discouraged investors and contributed towards the price decline.
Governments across the world are making attempts to regulate Bitcoin, and some are taking harsher views than others.
China, for example, has cracked down on cryptocurrencies, banning the trading of digital cash and participation in initial coin offerings.
Numerous major credit card issuers – including Lloyds, JP Morgan, and Bank of America – have also decided to halt the purchase of cryptocurrencies using their credit cards.
Many of these banks said they made the decision to protect customers from undue risk.
Security concerns are a further worry, with major Japanese exchange Coincheck recently hacked and large sums of digital cash stolen – an attack which may be attributed to North Korea.
Many think these events could have influenced the price of cryptocurrencies, causing them to plummet.
One of the more specific theories regarding the drop in value of cryptocurrencies is that the printing of Tethers (USDT) is being used to manipulate market prices.
An anonymous report commissioned by a cryptocurrency investment group investigated the allegations that the printing of Tether is being used to influence the price of Bitcoin on exchanges.
Tether is supposed to be backed by physical dollars, but if it is being printed at will in reaction to market prices, then there is not enough reserved physical currency to back the stable token.
As Tether is commonly used as a substitute for fiat on exchanges, this could mean that cryptocurrencies are overvalued, due to the overprinting of USDT and its effect on the market.
The report’s summary stated the following:
- The anonymous author believes the Tether company is most probably printing in response to market conditions.
- Following the printing of new Tether tokens, the price of Bitcoin rises noticeably.
- Bitfinex’s withdrawal and deposit figures are unusual and warrant further scrutiny.
- The author believes that a 30-80% reduction in the price of Bitcoin could occur if Tether’s printing practices are questionable.
A reduction of this magnitude in the value of Bitcoin would dramatically affect the cryptocurrency market, as Bitcoin is a major point of entry for blockchain-based currency investments.
Cryptocurrency’s volatility and its unregulated nature can also result in big price movements, which are likely to scare investors.
Many people have purchased cryptocurrency hoping to make quick profits, but jumped in during Q4 2017 – when many tokens were approaching all-time highs.
These investors could be getting scared of losing their money as the price declines.
Newcomers have also lost money in other ways, such as falling victim to the BitConnect ponzi scheme or having the coins in their exchange wallet stolen in a hack. This creates more negative sentiment.
If enough investors continue to sell off their tokens, the value of the cryptocurrency could continue to depreciate as a result. The cryptocurrency community often refers to this as “weak hands” or a refusal to “HODL”.
Early cryptocurrency adopters and investors’ overall earnings remain relatively high, however, and those with an interest in interacting with distributed ledger technology have non-financial motivations to remain involved in the market.