Cryptocurrencies have gained wide popularity over the last few years and experiencing high growth momentum. Many investors, incredibly wealthy individuals, consider it a robust investment and can be the future currency. Consequent to the investments in Cryptocurrency, the crypto market is booming. Moreover, institutional investors are also showing interest in Cryptocurrency, and a sizeable number of small businesses in the US have started accepting crypto as payment. That crypto is on a roll, evident from the astronomical rise in Bitcoin price from $5000 in March 2020 to $51,000 in January 2022. The other cryptocurrencies like Ethereum and Litecoin, the competitors of Bitcoin, and even meme currencies like Dogecoin are still hanging around. As cryptocurrencies gather steam, many believe that it is not far when it becomes mainstream. But what are the possibilities of the crypto momentum coming to a halt, and why?
Knowing the answer should help you decide whether you need to develop a momentum-based strategy for Cryptocurrency.
Monitoring the signals of cryptocurrency momentum
You should know how to measure the momentum of a cryptocurrency.
The price of an asset is a critical indicator of how strong or weak it is because the price reflects consumer confidence and trading volume. Cryptocurrency, especially Bitcoin, has been rising and broke all previous records on many occasions. If crypto prices reach a plateau or start sliding without any signs of a recovery, then it indicates a loss of faith in the currency.
Understanding the changes in momentum is essential, but it is not always correct to correlate price fluctuations with the market attitudes towards an asset. When the crypto prices soar high due to overbuying, the real momentum is slower, and the price is corrected soon. Overselling occurs when the price dips sharply and subsequently gets back to normal.
New laws or regulations
New laws impact the public’s faith in cryptocurrencies. Those who follow cryptocurrency news know that most advanced countries dislike crypto. Some have their crypto, and others have banned cryptocurrencies. If the developed countries keep strangling the crypto, it could ultimately threaten the future of crypto as its utility as a decentralized currency would diminish significantly.
Concerns about security
The blockchain technology used for crypto mining and maintaining ledgers ensures high security in transactions. Transacting in crypto is exceptionally safe, secure, and confidential. However, a significant 51 percent attack could dent consumer faith in crypto. Even if the attack is not much threatening, it could compel investors to reconsider their perceptions about crypto.
The fate of keystone currencies
Bitcoin is central to cryptocurrencies, and the crypto world revolves around it. Next are Ethereum, Litecoin, and a few other significant players who are much behind Bitcoin. Despite new cryptocurrencies emerging in the scene, these currencies are the keystones in the crypto world. A sharp decline in any of these keystones could have a ripple effect across the crypto market. As a result, it would retard the growth momentum that the market experienced earlier.
Overcrowding
The growth momentum might slow down due to overcrowding when there are many different types of cryptocurrencies in the market, and competition could even be an issue. As newer currencies enter the market, it becomes tough for individual coins to stand out, befuddling newcomers.
As countries like China, Venezuela, and Ecuador introduce their cryptocurrencies, the popularity could defeat the purpose of decentralized cryptocurrencies, weaken them, and even threaten their existence.
With ICOs becoming an easy way of funding startups, we see new crypto projects emerging every year. Although most of these cryptos vanish in a few months, it keeps expanding the cryptocurrency landscape.
Large scale economic collapse
Since cryptocurrencies thrive on the present economic system, a large-scale economic downturn could halt the growth momentum of cryptocurrencies.
Cryptocurrency is attractive as long as the economy is stable and growing. Any long-term adverse political or economic event like the current Russia Ukraine crisis will affect crypto growth.
