A growing number of people believe that bitcoin will collapse. Some claim it has already collapsed, while others think it is in its final days as we know it.
Many predict doom for the cryptocurrency market, but few have clear explanations about why this may happen.
Many argue that there are too many cryptocurrencies out there with no clear use case or value added. This creates an oversupply of crypto-coins which creates competition, but not much return for investors.
Another theory is that central banks around the world are slowly losing control of their economies, and thus begin printing money at a faster rate.
Printing more money causes inflation, which lessens the buying power of each unit of currency.
A third cause is that big corporations and wealthy individuals are investing in blockchain technology, which some say lacks fundamentals. They claim that the technology does not hold up under scrutiny and review.
All three of these theories could be true, however, none of them seem like very solid reasons for predicting a crash.
With all its recent success, bitcoin is proving to be very volatile. This can sometimes work in its favor as people flock to it, but this also attracts attention and scrutiny.
Since most people are not investing large amounts of money into bitcoins, they are less likely to invest when prices drop.
When investors do sell their coins, there’s always another person who wants to buy them, so the price drops even more!
This has happened many times before, and every time it did, media coverage about the downfall of bitcoin increased.
Some say that these fluctuations make sense because bitcoins are still new. But this argument doesn’t hold up because other currencies were as popular at one point too.
Another reason why people think that bitcoin will crash is the fact that cryptocurrencies have been around for several years now. People believe that once something gets big enough, it will stop performing well and get forgotten.
However, this isn’t true. Sure, some things lose popularity, but others find a second life later on. For example, look how popular smartphones are now compared to two or three years ago.
Huge price swings
Recent events have made it very clear that something is off with how dramatically bitcoin’s prices are fluctuating.
It seems like every few days, there is a new event or story about why the price has plummeted today but then later in the day, it bounces back up.
This isn’t necessarily a bad thing because we all know that cryptocurrency markets are not for the faint of heart. But it does pose some significant challenges to those who want to invest their money in cryptocurrencies.
By nature, cryptocurrencies are decentralized so there is no central party that people can go to for answers about what is happening with market conditions.
It can be difficult to determine if the drop was due to fundamental changes or if someone bought at a low point and sold after the price bounced back up.
The same goes for when someone buys or sells a large amount which could influence the market condition.
There is no one standard way to value cryptocurrencies either, making it even more difficult to understand why they move up and down in value.
Popularity of dollars
A large part of bitcoin’s value comes from people believing it to be a good alternative currency or investment.
People that use bitcoins tend to also believe that the government will eventually make them worthless, which is what most have come to expect for paper currencies.
Bitcoin has become more popular as both an asset class and a way to pay for things. More and more businesses are accepting bitcoins as a form of payment, making it easier to get bitcoins and giving them greater legitimacy.
As more and more people start using bitcoins, the supply of bitcoins in circulation increases, lowering the price per coin.
This was the case during the early stages of cryptocurrency before there were billions of coins in existence.
Since many economists agree that money should be decentralized (not controlled by one entity),
then this increasing popularity of bitcoins can be seen as a threat to the dollar.
Fewer people are buying bitcoin
There have been several theories about why there is such a large increase in interest in cryptocurrencies like bitcoin. Some say it’s because of the media coverage that talks about how easy it is to make money investing in cryptocurrency, which seems very attractive.
Another theory is that since the price of bitcoin peaked at around $20,000 back in late 2017. Many people who invested during that time are now hoping for a big return.
Yet another reason some cite for the recent spike in crypto-interest is the growing number of companies offering their services or products related to blockchain technology.
This includes everything from replacing current payment systems with ones made up of digital coins to creating your currency using this technology.
All three of these reasons seem plausible, but what we can be sure of is that as people begin to invest more seriously in cryptocurrencies, demand will drop.
Why? Because not enough people are willing to buy bitcoins to keep the market stable. As well as the cost of mining new coins (which grows steadily due to the increasing difficulty), people are also struggling to find use cases for them.
You can indeed spend bitcoins directly at websites and stores that accept them, but most people already know about cryptocurrencies so they aren’t necessarily familiar with what each coin does and where it is traded.
Investing in cryptocurrencies isn’t quite the guaranteed way to profit that some sellers may promote.
New regulations are coming
As more governments begin to regulate cryptocurrencies, people become less willing to invest in them. This is especially true for those investing in larger sums – as the price drops, they will lose money, making it harder to win back their initial investment.
Governments have a hard time distinguishing between currencies that are considered legitimate (like the US Dollar) and illegal ones (such as counterfeit Moneros). This makes it difficult to regulate crypto-currencies, as regulators can’t tell whether an asset is legal or not!
By regulating cryptocurrencies, people avoid investing in them due to the risk of being arrested later. Even though there aren’t many instances of fraud done with cryptocurrency, it isn’t very popular at this moment and so most people don’t trust it.
The bitcoin market is very small
Even though there have been many discussions about how bitcoin will crash, no one knows when it will happen. People seem to agree that once the price drops low enough, people will stop investing in bitcoins, and thus the price will start dropping even more.
When this happens, fewer and fewer people will buy bitcoins, and the supply of bitcoins in circulation will drop.
Because every time someone buys a coin, two coins are created! (This process is called “mining”)
Since less new money is being invested into bitcoins, the number of bitcoins available for sale also decreases.
As a result, the prices of most goods and services that can be paid with bitcoins fall. This is what crashes usually occur — things become too expensive due to lower demand.
Bitcoin is not practical as a currency
Some people claim that bitcoin will win in this battle for its survival, but they are wrong. They seem to believe that because bitcoins have been popular recently, that means they will always be popular.
This thinking goes something like this:
since money was once thought to be gold, then silver, then paper, now we have credit cards, so why not make lots of bitcoins and call it good?!
Well, first off, none of those things worked very well. Paper became too easy to copy, making it worthless. Silver has its disadvantages too. As do coins when you can make too many.
Bitcoin may work better than any of these, but that doesn’t mean it will stay successful! The reason is that while there is no power source needed for it, it requires an internet connection to function properly.
If the network is bad or the internet is down, your wallet cannot communicate with other users or computers. Thus you lose all your funds.
It’ll crash when the market crashes
When there is a large drop in investor confidence, people begin to sell their cryptocurrencies. As more and more people are trying to get out, the price drops.
At this stage, those who already owned coins will try to liquidate them for less money, which removes momentum from the market and lowers the value.
At this stage, some investors may decide not to invest any more money into crypto to avoid wasting money.
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While it’s understandable that someone might want to take advantage of what cryptocurrency market prices were like earlier this year, investing now means buying at significantly lower prices.
By skipping the early stages of the industry’s growth, you prevent yourself from getting great deals on cryptocurrencies.
By waiting until later on, you can save lots of money by paying discounted rates.