Despite the high volatility of bitcoin, which attracted many non-professional investors to the Market, many economists call the Crypto Currency bubble (as Warlock Buffett called Bitcoin, and Nobel laureate Paul Krugman compared bitcoin to the “bubble” in the real estate market). About what factors can crumble the crypto-currency market, said co-founder of the company TenX Julian Hosp.
Over the past year, crypto-currencies have shown explosive growth, the rates of some soared by several thousand percent. And the total capitalization of the market, the credit currency, increased by 3400% since the beginning of 2017. Hoess learned the opinion of other experts from the crypto community and presented four factors that could cause the bitcoin bubble to burst.
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Financial regulators all over the world have no tools that allow you to prohibit crypto-currencies.Therefore, now the authorities are only approaching the issue of regulation, however, one of the most unfavorable decisions can be the simultaneous blocking of crypto-exchange exchanges. If regulators in the US, Europe and other regions together prohibit exchanges and other companies that provide different services for the community, then this will deal a serious blow to the entire ecosystem.
However, the ban on ICO in China and the closure of local crypto-exchange exchanges in 2017 only led to the fact that companies began to register in other countries. And the market went up instead of growth. If crypto-currencies are banned in Europe or the US, it will have a negative impact on the Crypto-currency, expects Hosp. The probability of such a development of events is (Hosp predicts that this year it will happen with a probability of 10%), which will lead to a 50% drop from the maximum positions.
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Work of Exchanges
Until 2014, more than 70% of trading volume was held on the Mt. Gox. The termination of trading in early 2014 brought the crypto-currency market 80% lower than the maximum. Now the trade is distributed among a number of sites and not a single stock exchange accounts for more than 10% of the total trading volume. Now the market has two important players (Coinbase and its division GDax), the leading in attracting money to the ecosystem. Risk for the collapse of the market can arise if the market stops receiving money.
And one of the largest in terms of trading Binance Exchange sometimes increases the number of users by more than 200 thousand per hour. There is always a risk that the exchange may close, and no money will enter the market, or large amounts of crypto currency will be lost. The chances of having serious problems at a major stock exchange this year are estimated by Hospe at 25%. Such an event will bring down the courses by 10-15%.
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Purchase of credit on credit
Some exchanges allow users to buy crypto-loans on credit, and in some cases – use the currency bought on credit. Approximately 3-4% of such purchases risk becoming problematic: the new owner may not pay for the crypto currency. Buyers crypto currency on credit put on the fact that the market will continue to grow. Therefore, long-term preservation of the exchange rate at one level will be unprofitable for them. This scenario can collapse the market by 5-10% with a probability of 20-25%.
Tether Crypto Currency
Typically, the capitalization of crypto currency is calculated by multiplying the number of tokens by the value of the last trading position. Therefore, in some cases, with a capitalization of $ 1 billion in the crypto currency, there can only be $ 50 million. Tether’s currency is linked to the currency of the currency. Therefore, its market capitalization of $ 1.6 billion means that this amount has actually entered this crypto currency. Many crypto-currencies are connected with Tether, so it turns out that the crypto currency is not tied to the fiat, it will lead to a 10-15% drop in the market. The probability of such an event in 2018 is 10%.
It is unlikely that these scenarios will come to fruition in 2018, continues Josep. However, if the bubble begins to burst, all these factors will only increase the fall. Co-founder TenX said that if he feels that the probability of falling rates of crypto currency has increased, he will transfer his “crypt” to safer assets.
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