The fall in the cryptocurrency market continued on Wednesday. Since January 7, the entire sector has collapsed by as much as $365 billion. This is more than 40% of the value of the entire market.

Tell me when to stop

But there were still many signs of an overheated market in 2017. This opinion was expressed by some experts eight months ago, when Bitcoin exceeded $2,000.

When the total market capitalization of cryptocurrencies reached 500 billion, Ethereum co-founder Vitalik Buterin said that digital coins have delivered on all their promises.

This was a month ago. Today the market is valued at about the same.

However, if the virtual currency gets out of control again, it could all end in a crash that would take several years to recover from.

If you are truly a fan of Bitcoin, Ethereum or other members of the cryptocurrency market, then you should be happy that prices are becoming a reality.

Do you think the market has really reached its limit? Write about it in the comments to the article.

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Associated with tightening regulation and the disappointment of small investors who were hoping for continued growth of Bitcoin. Thus, regulation regarding cryptocurrency was tightened in China, another negative news was the possibility of a ban on exchange trading in South Korea and a ban on cryptocurrencies in Indonesia.

Bitcoin continues to fall in the new calendar month. According to Coinmarketcap data at 15:00 Moscow time on February 1, its value fell to $9.6 thousand per coin, having lost almost 7% per day. “The main factors for the fall now are reports of possible inspections by US financial regulators of Tether tokens and the Bitfinex exchange,” says Alexander Karelin, CEO of the BC13 blockchain agency.

In January, the media learned that on December 6, the US Commodity Futures Trading Commission (CFTC) demanded clarification about its activities from the Bitfinex cryptocurrency exchange and the Tether company. “Tether positions itself as a project where each token (USDT) is backed by a real US dollar. Tokens worth $2.3 billion are presented on exchanges, but experts have deep doubts about the company’s availability of these amounts. Many accuse the exchange and the company of manipulating the price of Bitcoin by buying it for unsecured USDT coins,” explains Karelin. Suspicions of collusion between the company and one of the largest exchanges are fueling nervousness in the market.

Implications for digital gold

It is premature to talk about Bitcoin losing its leading position in the market, say experts interviewed by RBC. They are confident that Bitcoin will continue to dictate market sentiment. “Altcoins (that is, all other cryptocurrencies except Bitcoin. — RBC) always focus on Bitcoin, the value of which largely determines the behavior of investors and, accordingly, the capitalization of these cryptocurrencies,” explains Pavel Matveev, co-founder of the crypto bank Wirex.

“As soon as some negative things happen regarding Bitcoin, the entire market is washed away.” For example, this morning Bitcoin fell by 6%, and other cryptocurrencies by 8-10%,” says Valery Smal. “Bitcoin will remain the main currency in the market because everyone relies on Bitcoin, because it is the only completely decentralized currency. All other coins have personal developers or even entire companies behind them,” he explains.

Sooner or later, Bitcoin will regain its position in the market, Matveev is sure. “Of course, it will no longer occupy a share of 70% or more percent, as it was last year, but 40-45% is possible,” he suggests. According to Karelin, the Bitcoin rate may soon drop to $8.5-9 thousand, after which growth should begin.

In 2017, the Bitcoin rate showed an increase from $1 thousand at the beginning of the year to a maximum of $20 thousand in December. The capitalization of the main cryptocurrency grew almost 15 times over the year, from $15.6 billion at the beginning of January to $226 billion at the end of December. The maximum capitalization at the peak of Bitcoin’s growth in December was more than $300 billion.

Over the past 24 hours, the rates of major cryptocurrencies, including Ethereum, Ethereum Classic, Zcash, Monero, Siacoin, have fallen by more than a quarter. Ether, which cost $240 at the beginning of the week, can be bought for $170-175 on the morning of June 11. Because of this, the number of offers for the sale of video cards and mining farms has noticeably increased.

The fall of cryptocurrencies

The price of cryptocurrencies peaked in mid-June, when Ethereum rose to $400. Experts talked about speculative growth and the danger that the “bubble” would soon burst, but the situation attracted the interest of ordinary people to mining - the “production” of cryptocurrencies using the computing power of video cards. Anyone can install one of the mining programs on a regular computer running Windows or Linux and actually maintain the functioning of the system of one of the cryptocurrencies. For this, the system “rewards” him by issuing “coins” of the corresponding currency. There is no emission center; the reward is embedded in the cryptomoney algorithms themselves. The greater the total power of video cards, the greater the reward per unit of time.

This led to a shortage and a strong rise in the price of video cards. For example, boards based on the AMD RX 580 chip, which immediately after their release in April cost about 15 thousand rubles, were already sold for 42 thousand in June. The payback period for such a video card varied greatly, since it depends on several quantities at once. On the one hand, the growth of the cryptocurrency rate in relation to “real” money like the dollar increased the profitability of the video card. On the other hand, cryptocurrencies are designed in such a way that the more miners servicing them, the less reward each of them receives.

At the peak of Ethereum, one AMD RX 580 video card with 8 GB of memory brought in up to $7 per day, while electricity costs were (and are) about 20 cents per day. The opportunity to quickly and easily earn money attracted many people “from among the people”, whereas previously mining was carried out by enthusiasts and those who are able to invest millions in the enterprise.

Now the same board mines Ethereum for less than $2 per day. If the rate does not rise again, then with the current total capacity of the Ethereum network, each video card will pay for itself in at least a year. Many advertisements for the sale of video cards and mining farms (computers with several video cards) have appeared on Avito and other sites, and the money for devices is already one and a half times less than in June.

At the same time, the Bitcoin rate decreased by about 10%. When “mining” this cryptocurrency, computing power is used, but fast memory is not needed. Therefore, specialized processors (ASICs) were developed several years ago for Bitcoin mining, which are much more efficient than video cards. As a result, today mining bitcoins using video cards is not economically feasible - the reward will not cover the cost of electricity. Bitcoin “mining” has become a business for large players who locate their mining farms, mainly in China, in regions with cheap electricity.

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Statistics show that in the crypto market, investors are less tolerant of a fall in the exchange rate of cryptocurrencies than in the traditional market. This is partly due to the unreliability of cryptoassets compared to traditional instruments. Partly, this is the inexperience of investors who sell coins at the slightest drop in value, when their colleagues from the traditional market, more accustomed to fluctuations, behave more cautiously. Why are cryptocurrencies falling? What to do if the cryptocurrency rate falls? How to make money from the fall of cryptocurrency? Let's find out in this article!

Why are cryptocurrencies falling?

The reasons for the fall in the value of cryptocurrencies can be divided into technical, market, economic-political, psychological and moral-ethical.

Technical reasons:

• Loss of benefits. If there is a Currency A with good anonymity, but a Currency B comes along that offers even stronger encryption, then Currency A may fall because it will lose some of its benefits. A cryptocurrency may lose its advantage compared not even to another currency, but to its previous one due to modernization or other reasons.
• Forks. If, for example, a hard fork significantly outperforms its predecessor, then it is possible that the value of the predecessor will fall, especially if it has shortcomings that greatly complicate its use. But if the fork does not live up to expectations, then its rate will most likely decline, because investors will prefer the old with known shortcomings to the new with unclear shortcomings.
• Hacking and hacking attacks provoke a depreciation because people do not want to lose money and quickly get rid of the vulnerable currency.

Market reasons:

• Market overheating. If cryptocurrencies have been growing rapidly for a long time, we can expect them to fall, because the reasons why they are growing are no longer comparable to the rapidity of growth, and the inertia due to which growth continues is gradually weakening, like any inertia.
• Dumping. Traders often deliberately collapse currencies, hoping to make money from it. This process is called and consists mainly of selling large quantities of cryptocurrency to create panic.
• Domino effect. Less popular currencies often fall following more popular ones. For example, the fall of Bitcoin often provokes a fall of other currencies, although only Bitcoin can have objective reasons for the fall.

Economic and political reasons:

• Prohibitions by states- be it a ban on trading, exchange, investing, mining or a ban on cryptocurrencies in general. The more weight a country has in the global economy and in the political arena, the greater the collapse in exchange rate that a ban can provoke. Moreover, the collapse of the cryptocurrency rate is provoked even by assumptions regarding bans when it comes to large states.
• Restrictions from financial institutions- exchanges, banks and others. The more influence a structure has in the financial world, the more the cryptocurrency rate falls.
• Negative opinions famous financiers and bankers about the market situation. For example, if an expert predicts the fall of a certain cryptocurrency, then it may fall because people who read this opinion will begin to sell it.

Psychological reasons:

• Disappointment. For example, many investors entered the market in December 2017, when Bitcoin was soaring. Now it has fallen, December investors are disappointed and, since their investment experience is often limited to this month, they are selling off the currencies they bought. This situation is observed after almost every rapid growth and its gradual attenuation.
• Excessive. When a cryptocurrency begins to fluctuate greatly, many investors cannot stand the nervous tension and leave the market.
• Vague rumors. In the absence of reasons for the rate to fall, a vague rumor spreads - and everyone starts talking about cryptocurrency, without understanding what is actually happening. Frightened by the unknown, cryptocurrency owners believe that it is better to get rid of it just in case - and the rate falls.

Moral and ethical reasons:

• Ignoring developers of current vulnerabilities or other problems forces owners to part with it, and the rate falls.
• Unethical ways to get money from users do not add popularity to cryptocurrency, but exactly the opposite. Among them can be anything, for example, deceiving referrals (users who brought other investors during the ICO), throwing a previously hidden batch of coins onto the market, etc.
• Fraud Information. The price falls depending on the number of victims and what actions they and other analysts took to warn others.

How to distinguish a sagging cryptocurrency from a hopeless one?

Some currencies fall without hope of recovery, while others successfully bounce back.

It is difficult to accurately predict the development of events, but there is criteria that can guide an investor:

• Real value. Cryptocurrencies have gained their popularity for a reason. Demanded coins will sooner or later return to their previous positions. Cryptocurrencies that have no real value will be able to grow if they start to be “inflated” again, which is unlikely.
• Presence of competitors. All other things being equal, after a fall in the exchange rate, most likely the best currency in its field will begin to rise, while the worst may continue to fall due to the fact that its niche will be occupied by the best.
• Prospects. If the fall of a currency is caused by reasons that can be influenced by its creators, then their actions usually determine its future fate. For example, if the blockchain is hacked, the exchange rate drops. But if developers quickly respond to hacking, reliably protect the currency, and explain security methods, then the currency has every chance to grow again. Lack of attention or half-hearted promises will likely cause the currency to fall further.
• Buying on the market. If a currency has fallen, but suddenly offers to buy appear, then we can hope that traders will raise it. Offers to buy are generally a good sign. They say either that the fall in the exchange rate is the work of speculators, or that professional players believe in the currency and try to buy it while it is cheap, counting on a further increase in the exchange rate.
• Reviews and analytics. If everyone says that a currency is a scam (fraudulent), then most likely it is a scam. And if its rate fell because of this, you should not hope for growth. However, if they are not talking too actively, and the currency fluctuates among the top ones, it may rise a couple more times before falling. But sooner or later the fall will surely be final.
• Popularity. Top currencies tend to fall uncertainly. Unpopular ones usually fall faster and rarely recover. The top ones are distributed among a large number of owners, not all of whom believe in the negative news, have heard about it and are ready to part with a promising asset. An unpopular currency has physically fewer holders, and they are less reluctant to get rid of it.

It doesn’t hurt to also look at graphics : If a currency has had a tendency to fall and rise strongly in the past, then there is a chance that this will happen again in the future.

What to do if the cryptocurrency rate falls: wait

The main question for investors- wait or sell. The answer varies in each individual case.

The owner of a cryptocurrency must remember that when selling cryptocurrency, he further lowers its rate. The less popular the currency and the lower its capitalization, the more each sale will affect the exchange rate. When it comes to unpopular currencies, it can be changed by the actions of even one holder.

A wait-and-see strategy is relevant in the following cases:

• if it is a promising cryptocurrency that has real value if it is supported by developers;
• if it is a giant currency that has fallen due to another local ban or destabilization in the traditional market;
• if it is a promising currency that has fallen due to the fall of giant currencies and general destabilization in the crypto market;
• if the value of the currency is clear, and the reasons for the depreciation are unclear, not obvious, provoked by rumors and someone’s opinion.

In these cases, the probability of exchange rate recovery is high.

Here it is useful to learn how to determine how valuable an asset is as a market instrument or technically, and if it is valuable - weather such storms. And if there is no obvious value, you should be more cautious about the idea of ​​​​preserving it when the exchange rate falls.

However, if a not very valuable asset falls due to a falling market, then it will probably rise after it. If it falls on its own, you should take a closer look at the reasons for the fall.

The advantage of a wait-and-see approach is that due to the volatility of cryptocurrencies, it turns out to be winning much more often than a losing one, especially in the case of giant currencies.

But there is also a minus: the owner may incorrectly evaluate his asset, not pay attention to the factor that will provoke a further depreciation and so on. The longer the investor waits, the greater the losses he will suffer.

What to do when the cryptocurrency rate falls: sell

Selling a falling currency makes sense in two cases:

• if the cryptocurrency falls without hope of growth;
• if its price is even higher than the investor’s purchase price, but there is a possibility that if it falls, it will break through this mark.

In the first case, you need to assess whether there really are no growth prospects. If not - sell as quickly as possible.

Plus: The investment may be able to be recouped at least partially.

Minus: the investor may incorrectly assess the situation and the currency will go back up after the fall.

In the second case, it is appropriate to sell a currency if it is clearly likely to fall below the purchase price or if the investor prefers less risk and less profit to the possibility of high profit associated with the same risks.

If the currency falls completely, the investor will win. If a currency, having fallen below the purchase price, suddenly shows an upward trend, the investor will be able to buy it again without loss to himself. Unfortunately, if the exchange rate does not reach the purchase price, goes up again and “breaks through” the price for which the currency was sold when it fell, it turns out that the investor made a mistake.

The advantage of this option is that the investor will win in any case: one way or another he bought cheaper and sold more expensive.

The downside is that the investor may lose a good speculative instrument and source of income.

What to do when the cryptocurrency rate falls: make money

In addition to selling or taking a wait-and-see position, the holder of currencies has another option - make money from falling exchange rates. The tactics depend on the currency and the reasons for its fall.

If this is a giant currency that is falling due to economic and political events and news, the investor can begin to actively sell it in order to support the depreciation. After the price collapses at the minimum, he will buy it again, the currency will inevitably increase, and the investor will earn money.

If it is a medium or unpopular currency, an investor with large assets can practically manage the depreciation. But you will also have to be careful, because an excessive collapse in the exchange rate can pull the currency further down against the wishes of the player.

An investor sells all his assets when the price falls, watches the price go down, and at the moment when it seems to him that this is enough, buys currency for next to nothing until the exchange rate begins to rise as a result of his actions.

Such manipulations can give huge profits, calculated in hundreds of percent.

In conclusion, it is worth noting that the fall of cryptocurrencies usually does not indicate problems in the crypto market, but, oddly enough, its formation. Sometimes the market suffers due to currency weaknesses ( for hacking and other “crypto” problems), but they are eliminated by implementing hard forks and new technical solutions.

And of course, the fall of cryptocurrencies is not a negative event for an investor who can react in time and not only not suffer losses, but also make good money.

Where cryptocurrency rates are published in real time, over the last 24 hours the price of Bitcoin (BTC) fell by 15.05%, Ethereum (ETH) - by 16.07%, and the rate of another cryptocurrency from the top three, Ripple (XRP), decreased by 23.04%. What does this news mean? In a conversation with a correspondent, the website blockchain consultant Denis Smirnov explained the current collapse with negative news from China. There, the government is closing access to all major cryptocurrency exchanges. As Bloomberg news agency notes, Chinese authorities also plan to block domestic access to local and foreign platforms through which digital money can be purchased.

What's happening?

According to Denis Smirnov, it was this message that led to a decline in the market. However, the expert does not advise giving in to panic.

“The cryptocurrency market is monstrously volatile (that is, prices on it change at a rapid speed. - Ed.). The previous exchange rates will be restored, and additional growth can be expected,” the market analyst believes.

So, according to CoinMarketCap data, the Bitcoin rate on January 17 was $10.2 thousand, while on January 15 this figure was at $13.7 thousand, and on January 11 - $13.6 thousand, and on January 9 the rate of this digital currency reached $15.4 thousand.

TASS/AP Photo/Kiichiro Sato

Bitcoin futures trading on the Chicago Exchange

As Denis Smirnov explains, the decline in the rate of Ripple, Ethereum and other alternative cryptocurrencies is due to the fact that all currencies on the exchange are traded against Bitcoin and directly depend on its value. Plus, the fall of Bitcoin causes panic among investors, and they begin to sharply sell their assets. Another factor that led to the decline was caused by the limited access of new participants to the exchanges, the managing partner of the First Cryptoconsulting agency added in an interview with the site’s correspondent. Pavel Burtsev. So, a few days ago, news appeared in the media that the largest cryptocurrency exchange Bitfinex (access to which, by the way, is prohibited from the territory of the Russian Federation) introduced serious restrictions on opening new accounts. They concern small investors. At the same time, the collapse in the electronic money market was caused, among other things, by similar behavior of exchanges. They cannot cope with the large flow of clients, so little new money flows into this sector, says Pavel Burtsev.

What to do?

This can be done on the already mentioned website CoinMarketCap or on its Russian-language analogue - “Crypto News”, as well as on other portals where rates and analytics are published in real time.

Speaking about amounts, Denis Smirnov recommended investing exactly as much as you are not afraid to lose. This will save you from unnecessary worries and allow you to calmly monitor the situation. When asked whether it is worth “transferring” funds from cryptocurrencies to other assets, for example, to the dollar or euro, the blockchain consultant noted that this is not necessary yet.

“It’s better to wait now. The cryptocurrency market can show good results in the long term,” the specialist advises.

TASS/AP Photo/Ahn Young-joon

According to him, much will depend on the legislation, which in our country does not yet regulate this type of investment.

Let us remind you that the Ministry of Finance may introduce the corresponding law to the State Duma as early as February. In particular, the document defines such concepts as “cryptocurrency”, “mining” (that is, “extraction” of digital finance using computing devices) and “ICO” (initial placement of new tokens - cryptocurrency units). According to the Deputy Minister of Finance Alexey Moiseev, who was quoted by the media, the law is currently being finalized by the department. In this case, the main emphasis will be on ICO. Issues related to the circulation of cryptocurrency will be regulated separately, the Deputy Minister of Finance said then.

What will happen?

The experts surveyed believe that Bitcoin will continue to grow again in the near future. It may not be as fast as before, but it will definitely happen, experts are sure. Thus, in a conversation with a website correspondent, the President of the Russian Association of Cryptocurrency and Blockchain (RACIB) Yuri Pripachkin believes that Bitcoin will not fall below $8 thousand and it will definitely be above the $10 thousand mark. According to the head of RACIB, price fluctuations will “wash out” small players from the market and leave only those who believe in the long-term prospects of cryptocurrency.

One way or another, much will depend on legislation and the news background. Both of these factors are still strongly reflected in the exchange rate of Bitcoin and other digital currencies.