Following wiping out of an almost 40 per cent of its market value in the last two weeks, there are analysts and experts who has started to explain the reasons of the occurrence of the “perfect storm of turmoil” for the most well known crypto currency of the world.
The recent rout of bitcoin has led to concerns about the future of crypto currencies altogether.
There has been a fall of 80 per cent in the price of bitcoin so far in 2018. The fall this month was driven by a sale off because of a rival crypto currency, bitcoin cash, getting split into two because of disagreement between developers and miners over the future of the digital currency.
But in recent times, a comeback of sorts has been noted for bitcoin. According to CoinDesk.comm it recently passed the psychological $4,000 mark from a value of as low as $3,600 just last week.
The reason for the wiping out of billions from the world’s biggest crypto currencies was market tensions, believes Samantha Robb of Wirex, a provider of cryptocurrency wallets linked to Visa debit cards.
Further, bitcoin is very vulnerable to investor sentiments because it inherently does not have any value by itself.
“Due to the fact that Bitcoin has no intrinsic value it is extremely vulnerable to investor sentiment. You have three main camps – those that got into the market when Bitcoin was trading near $20k and those who wish they had bought at $1k,” she said.
“The camp that are in severely negative territory are hoping to win back some losses – perhaps by dollar cost averaging. Those who experienced FOMO are tentatively testing the waters hoping to catch another $20K wave,” she added.
She believes that trades comprise the third camp who are busy in reaping dividends from the volatility of the crypto currency and is engaged in minute by minute trading.
She believes that a recipe for a perfect storm of turmoil is created because of all of these factors and it is almost impossible to predict the movement of the crypto currency in the even coming days – let alone weeks or months.
“Until the markets are fully regulated and everyone is singing from the same hymn sheet in terms of their place within established markets, we will continue to see this kind of volatility. Wirex plays a huge role in bringing crypto currencies into the mainstream by providing a secure and instant payment platform for users,” she says.
The manner in which bitcoin has behaved in the last few months has created uncertainty about whether the digital currency has attained a bottom, says Stephen Innes, the Asia-Pacific Head of Trading at Oanda and added that the crypto currency could drop to as low as $2,500.
For investors in digital currency, the current situation is very negative, believes Innes, and this, according to him, will lead to investors staying away form the digital currency.
He said: “What I’m really looking at here is the way coins have been trading over the last few months.
“And that tells me there is more room to go and as soon as we hit some of these key round figure inflection points like $3,500 and $2,500 (£2,738 and £1,956), the psychological impact will weigh on more inexperienced traders.”
(Adapted from Express.co.uk)