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What Causes the Cryptocurrency Slump Season?

What Causes Cryptocurrency Slump Season

What's causing the current cryptocurrency slump? This article outlines the factors that contribute to the decline in Bitcoin and other digital currency prices. It’s also known as a market winter, but like every season on earth, it too shall pass to the next. The reasons for the slump are varied, including a lack of liquidity, instability, and regulation. But it all boils down to the Lunar New Year. No, I swear! I know it sounds crazy, but it seems to be true.

If you want to avoid the same mistakes, you need to educate yourself. Before you invest in digital currencies, consider these three reasons. In this article, we will go over the following variables that have the most impact, in my opinion:

  • Lunar New Year
  • Lack of Liquidity
  • Current Instability
  • General Regulation

If this article doesn’t quite cover it all for you, don’t worry. This isn’t a comprehensive list, but just some of the current reasons for this type of financial winter. You can go to cryptowealthbay.com for a more in-depth analysis of this phenomenon. While some people track things like market values and inflation (like me), others are more numbers-intensive operations.

But first, what is this magic?

Before we get into the exact details, we need to know: what is this money magic? A cryptocurrency is a form of digital currency that is intended to serve as a means of exchange but has no physical representation.

digital currencies work through cryptography and operate without a central authority. As a result, new units are added only after certain conditions are met. For example, if you want to mine bitcoins, you must create a block on the blockchain and only then do you get new bitcoins. The limit on the number of bitcoins is 21 million.

The peer-to-peer money world has seen some amazing developments in recent years. The first of these was the introduction of the cryptocurrency (or simply “crypto”) exchange BitMex. It quickly became the currency of choice for people who wanted to avoid banks or invest in the financial crisis.

What are the benefits?

Cryptocurrency is used as a form of currency in many different places. It can be used to purchase regular goods and services and can even serve as an investment vehicle. To use crypto, you must create a wallet that allows you to store and send it. Transactions are not instant, however, and must be validated before being sent.

Another advantage is the freedom of choice. You can store and transfer as much decentralized finance as you want, as long as you don't spend more than you have. digital currencies are becoming increasingly popular. Bitcoin, Litecoin, Ethereum, and Zcash are among the most popular digital currencies. Every day, a new one pops up. These digital currencies are growing at an exponential rate.

For a comprehensive guide to the history and makings of digital currency, head over to the Wikipedia page. Click the following link: https://en.wikipedia.org/wiki/Cryptocurrency and read up about the worldwide movement of decentralized finance. It is the newest wave of economic freedom that every American should partake in.

While the popularity of digital currencies continues to grow, governments are still weighing in on this new trend. Many countries have yet to pass any kind of concrete legislation regulating the system. Since digital currencies are decentralized, they cannot fall under one jurisdiction.

bitcoin and crypto

Lunar New Year

The ongoing crackdown on cryptocurrency in China is a major contributor to bitcoin and the cryptocurrency slump. With major digital currencies experiencing massive sell-offs, panic has gripped the markets. Added to that, a lack of underlying assets, means the price of bitcoin relies on speculation. This isn't the first time this lunar calendar has caused steep corrections to hit the bitcoin price.

Last year's sell-off coincided with the lunar New Year, which is celebrated in many Asian countries. In the weeks leading up to Chinese New Year, bitcoin prices drop. In 2017, the price dropped 30% from $1,130 to $784.

The price dropped steadily from $3,491 before the Chinese New Year to $3,397 after the new year. This trend has been repeated in the past three years. Traders have noted that the rise in bitcoin prices during the Chinese New Year may be due to retail investors selling off their holdings and buying more bitcoins at a lower price.

Lack of Liquidity

Despite the huge potential of digital currencies, there is a lack of liquidity in the crypto market. This is largely due to the leverage investors use to make purchases. This is not an ideal situation because conventional investors have little to no idea whether their investments will earn them profits.

Additionally, because crypto is such a volatile asset, the holder of a large amount of the decentralized finance market will be frightened by any sudden drop in price. This causes the market to flood. To track the stock of the most popular crypto (Bitcoin) click here and read on. Yahoo keeps a constant ticker on most of your favorite stocks.

While many people were unable to profit from the recent cryptocurrency market slump, the vast majority of investors lost money. The market value was wiped out in less than five months.

Current Instability

The collapse of the UST, the largest crypto asset, has brought much attention to the instability of the entire peer-to-peer money market. Last November, the crypto market hit a high of $2.9 trillion, and by the end of January, it was less than $300 billion. Bitcoin, the second largest cryptocurrency, is facing a slump, down more than half from that peak, while other popular coins have also fallen. Other digital currencies, such as XRP, Polkadot, and Dogecoin, are down even more than bitcoin.

The collapse of UST has also caught the eye of regulators, who are concerned about the risks that peer-to-peer money poses to the financial stability of the global economy.

The price decline of digital currencies is similar to those experienced by regular stock markets.

Those who purchased crypto during the surge earlier this year are not feeling as much pain from the plunge. In addition, the price drop is part of a wider market pullback from risky assets. Inflation, rising interest rates, and the economic uncertainty induced by Russia's invasion of Ukraine are all contributing factors to the heightened volatility. In addition, the pandemic has dampened the stock prices of some companies, such as Zoom, Netflix, and Bitcoin.

General Regulation

The regulatory environment surrounding crypto is at a crossroads. While the Federal Reserve's actions have cut liquidity for some time, the latest move by China has hurt prices. China banned exchanges, but not individual crypto ownership.

Consequently, the Federal Reserve’s website states that it is also reducing itn liquidity, and many cryptos have experienced a significant decline through 2022. In May 2022, the crypto TerraUSD fell sharply due to a so-called "bank run." Its traders feared that it would not have enough assets to back its peg to the US dollar. This news spilled over into the other crypto markets.

But the industry faces real threats from regulation. It faces the threat of becoming the victim of its own success. Increasing government scrutiny and regulatory action could lead to greater scrutiny of the industry. Regulation could put a stop to the utopian dreams of crypto purveyors.

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