There has been bad news for crypto investors and the cryptocurrency industry because recently crypto witnessed two sudden drops in valuation which have led it to enter the correction territory. Even though given the volatility of the market, there is nothing very surprising about a price drop of about ten percent, but it could mean that there could be a further drop in prices in the months to come. There has been a decline in stock prices for digital currencies since the month of September, and since the most recent decline was a big one, crypto analysts are predicting that the crypto investors could have to shed a few more tears in the months to come.
What does Crypto Correction actually mean?
Normally a correction is defined as a steep decline in at least ten percent of the market price of an asset from a position of having achieved a recent hike. The reason it is known as correction is that this decline is meant to return the stock price from its unusual unprecedented surge to its actual pricing that would be predicted as per a long-established trend. Crypto market corrections or corrections in any industry are immediately followed by recoveries but they could also result in longer periods of decline, otherwise known as bear markets, where the price drop could go up to twenty percent or more.
Crypto corrections are characteristically between five to ten percent and are much more often than other industries, because of their ambiguous nature and high volatility rate. However, the trends always tend to balance themselves out because of frequent recoveries too. The overview trend since the inception of the crypto correction has been bullish in nature.
What led to the Crypto Market Correction 2021?
Cryptocurrencies have been one of the best assets in terms of performance in the year 2021. The market investors prepared themselves for a drastically evolving future for cryptos. The cap for the entire crypto market started at the beginning of the year had a valuation of under 800 billion USD. but there was a huge wave of investment from individuals and all of the fresh capital resulted in a surge of the market valuation. Within no time the market value went as high as 240 percent on a year-to-date basis although there has been a recent decline.
The problem lies in the fact that the traders are trying to suk in profits from the biggest winners of the crypto game which would further lead to a decline vis a vis the domino effect. This could lead to another ten percent which could break down the bearish market for the crypto.
However, there is little to no doubt that this stock would be bought right back up by the traders and investors once the momentum takes a shift towards a more positive side.
Crypto Correction News:
The price of bitcoin dropped below 56,000 USD in the morning of Friday which is the lowest price it has encountered since the month of October. But even after bitcoin fell its highest amount the week before, its valuation still stands stronger than the lowest of 4,000 USD that the market saw during the end of September.
After witnessing an all-time high for ethereum as well during the last month, it has faced a steep decline too. The reason could be the ban on cryptocurrency and its subsequent mining from the Central Bank of China. The bank of China declared that all cryptocurrencies were illegal in the country henceforth and after that, the price of bitcoin has struggled to get back to its earlier position of 52,000 USD in present-day October.
What would Crypto Correction mean for Crypto Investors?
For people who invest in crypto on a long-term basis using the buy and hold method, sudden fluctuations like these are rather common and nothing to be worried about. Humphrey yang who is a financial expert and the voice behind the financial advising channel Humphrey talks mentioned that he avoided checking up on his own investments when the market is fluctuating rapidly in order to stop worrying. Therefore, it can be inferred that huge swings like these are actually very common and abound from time to time. This is why experts also recommend keeping the crypto investments under five percent of the portfolio. The idea is to invest in such a manner that the crypto investment does not meddle with the other financial goals that you may have set for your life. Losing the investment to a big dip should not totally affect any major moves concerning your life.
What could be the Reason behind the Crypto Correction?
Price fluctuations recently have followed through the new regulations issued by the government of the USA as well as the newest legislation that has come out regarding the cryptocurrency and the crypto market incorporated within the infrastructure bill. It must be taken into consideration that the crypto industry is still relatively new and cryptocurrency is still pretty unproven as a mode of exchange. Therefore it is pretty obvious that it does not take many triggers for the price to fluctuate. The idea also is that short-term investors have been pulling back their investments as a result of the panic they have been facing due to the recent drop. This could have led to a further fluctuation in the stock prices of the market. Other factors that could have contributed a lot to the fluctuating prices would include negative remarks from the billionaire Elon Musk who had previously just praised crypto for its increasing valuation. There has also been a steep dip in the enthusiasm of people regarding low-quality coins. China putting a ban on the crypto services deeming it illegal is also one of the major reasons why the stock prices showed such a steep decline.
The stock market crash from 1987 took several months to recover and here it is to hope that the crypto market does not face the same. Even though the market may witness drastic declines, it would also see drastic surges subsequently because of its volatile nature. The stock prices for crypto move a lot faster than any other stock market exchange and that becomes both the benefit and the curse of the industry. The only thing that crypto analysts have advised post the crypto correction 2021 is to hold tight to the seats and not panic. Things are most likely to restore back to their original places soon enough. The idea is to make small investments and hold tight to them.