Cryptocurrency: Is it just a bubble, or is it the money of the future?
Lately, the crypto market is in a steep decline.
Is this the sign of an impending market crash, or is this normal behavior for such a volatile market?
Take a breath. Maybe two. Now let’s get into all things crypto market …
I’ll explain what the cryptocurrency market is, some of its history, and why the market seems to be crashing right now.
Plus, I’ve got key tips for you and my favorite patterns for investing in a crashing cryptocurrency market and more.
Download the key points of this post as PDF.
Table of Contents
- 1 What Is the Cryptocurrency Market?
- 2 My Favorite Patterns for a Crashing Cryptocurrency Market
- 3 Key Tips for a Cryptocurrency Market Crashing
- 4 The Bottom Line
What Is the Cryptocurrency Market?
Cryptocurrencies are digital assets or currencies that use cryptography to secure financial transactions.
In plain English: It’s a medium of exchange and transferred between people — just like regular money.
There are a lot of different cryptocurrencies available, but most are based on blockchain technology.
Now, what’s a blockchain? The computer science behind it is complicated…
In simple terms, it means that cryptocurrencies aren’t issued by a central authority. They’re a decentralized form of currency with a ledger of transactions (known as the blockchain) that are verified by their own users.
The cryptocurrency market is the buying and selling of these assets …
That includes transfers between individual people, businesses that accept crypto as a form of payment, and exchange websites that facilitate the buying and selling of these digital currencies.
For years, the cryptocurrency market always seems to be in the news. Sometimes it’s positive. Often it’s negative — involving scandals or hacks.
But the average person still doesn’t understand just how these assets work.
In 2018, the market cap of bitcoin, one of the original and most popular cryptocurrencies, surpassed $70 billion. It had peak trading volumes of approximately $3 billion per day.
Cryptocurrency Market History
The first bitcoin transaction occurred on January 12, 2009. That started the cryptocurrency revolution.
The Early Days
In August 2010, Bitcoin was hacked due to a major vulnerability. Toward the end of the year, the first monetary transaction using bitcoin took place: A user traded 10,000 bitcoins for two pizzas.
Today, 10,000 bitcoins could be worth over $30 million dollars!
As with any new market, competition soon emerged …
Rival cryptocurrencies like litecoin, swiftcoin, and namecoin began to pop up in 2011. Bitcoin got a negative reputation for claims that it was used in iffy purchases — like for illegal drugs on the dark web.
But bitcoin proved there’s no such thing as bad publicity. The price continued to skyrocket, occasionally crashing back down temporarily in the process.
Crypto Growing Pains
Cryptocurrency is no stranger to scandal.
In 2014 the crypto-exchange platform Mt. Gox went offline and filed for bankruptcy, taking investor’s bitcoins with them.
It can be a crash-and-burn market. Over 1,500 cryptocurrencies have been created over the years. Most fail — losing most or all of their value.
Some, like litecoin, remain successful from inception.
Other popular coins like ethereum and coinbase emerged around 2015.
Bitcoin saw a significant decline in value toward the end of 2018.
The Current Crypto Landscape
Today, bitcoin — and cryptocurrency as a whole — continues to see massive upswings and downswings in value.
A favorable news event can cause cryptocurrency prices to spike …
And those prices can take a dive on fears of government regulation and other news catalysts across multiple cryptocurrencies.
The cryptocurrency market trend remains as wild and seemingly unpredictable today as ever.
Why Is the Crypto Market Crashing?
Owning cryptocurrency can be like a rollercoaster ride, and it ain’t for the faint of heart.
In 2018, bitcoin fell from a price of more than $16,000 to dips approaching $3,000.
Nobody’s completely sure where the bottom lies for most cryptocurrency prices, so there’s a panic every time they go into free fall.
Does that mean the crypto market is crashing or collapsing? Or is this just normal volatility for an unpredictable market?
It’s hard to say.
Crypto enthusiasts are optimistic that this is just a correction, that their favorite currencies will bounce back.
Naysayers are less forgiving. Some even expect cryptocurrencies to drop to a value of $0 in the long run.
We can’t know all of the reasons why the crypto market seems to be crashing, but we have some pretty good ideas …
The bitcoin cash hard fork. In November 2018, bitcoin was subject to a ‘hard fork.’ Some liken this to a crypto civil war or a divorce.
Let’s put that in layman’s terms … bitcoin was essentially split into two different currencies: The original bitcoin and a new cryptocurrency called bitcoin cash.
That caused a lot of uncertainty, and may be part of the reason for the crypto market crash.
Regulatory pressures. The CFTC (Commodity Futures Trading Commission) and SEC (Securities and Exchange Commission) have both come to the consensus that bitcoin isn’t considered a security.
They’re also cracking down on initial coin offerings (ICOs). Global pressures and events like Brexit caused central banks to tighten policies and caused an overall decline in market liquidity.
Ongoing controversy. Cryptocurrencies always seem to be embroiled in one scandal or another.
The U.S. Department of Justice is investigating cryptocurrency market manipulation — including whether the coin tether was used to inflate the price of bitcoin artificially.
Some coins, like bitconnect, were nothing more than a front. Initial increases in value gave out after the underlying Ponzi scheme was discovered
Taxes. There’s no one reason why people are selling off cryptocurrency.
Some might be panic selling.
Others might just need the money. Maybe they need to pay off capital gain tax on previous crypto sales they made.
First-time crypto investors are looking at capital gain taxes from the profits they made during the year.
A few years ago, the IRS announced that cryptocurrencies are defined as property — not currency. That leaves many in shock when it’s time to pay taxes on gains.
A ban on advertising. Google announced that it was banning all advertisements related to cryptocurrency.
This caused bitcoin to drop more than $500 in a few hours and hit an all-month low.
Bad press. Image is everything …
The more people see headlines about crashing cryptocurrencies, the more public perception affects their price.
Is Now a Good Time to Be in Crypto?
Cryptocurrencies don’t have the same kind of stability and history that the stock market does.
Honestly, I think that anyone who claims to be able to predict crypto is being misleading.
There are so many different factors that influence the crypto market. Any event can turn the whole market on its head in a just a few hours or overnight.
It’s not uncommon to see bitcoin fall or surge hundreds of dollars in a single day.
For that reason, it’s impossible for me to say 100% whether now is a good time to be in crypto.
But if you follow the typical stock market advice of ‘buy low,’ now seems like a great time to establish a position in crypto if you haven’t already.
Bitcoin’s price is lower than it’s been in over a year — and at one of its lowest prices since its initial meteoric rise.
We might be looking at cryptocurrency markets finally leveling off, establishing some kind of normalcy.
But I think we’re in store for many more big spikes and dips along the way before that happens.
Cryptocurrencies could double in value within the next month. Or they could drop to zero.
That’s the thing with trading crypto. It’s high risk.
It all depends on your risk tolerance.
My Favorite Patterns for a Crashing Cryptocurrency Market
The crashing cryptocurrency market can look like pure chaos. Here are some tried-and-true patterns that I like to use to make sense of all the noise.
Dip-Buying Morning Panics
In the cryptocurrency market, it’s not uncommon to see a 20%, 30%, or 40% dip on bad news.
And, often you’ll see a crypto coin bounce 10%, 20%, 30% — even 50% or 100% within a few hours.
If you’re right, you can potentially see the value rise. If you’re wrong, you could possibly be buying low.
The key here is that you aren’t buying just any coin that’s going down …
You specifically need to find a strong coin the first morning panic following bad news, after it’s been going up for weeks previously.
Dip-buying is like a Black Friday sale.
Sometimes people who wouldn’t normally buy a coin want to get in — just because the price is so good. These natural dip-buyers can cause a coin to bounce.
First Green Days
What are first green days when it comes to cryptocurrency?
I look for a coin with a low price. One that’s relatively unknown or doesn’t have too much volume. And I look for a strong close after some kind of catalyst.
Maybe it just hit a new 52-week high. Maybe a billionaire just decided to invest in it. Basically, look for any big piece of news that could influence traders to buy it.
That can cause a 20% to 100% increase on the day.
With first green days, you’re looking to take advantage of market inefficiency. Most traders won’t pay attention to the lesser-known low-priced coins. They’re focused on the big names — bitcoin, ethereum, or XRP.
Once people catch wind of a big piece of news for a cryptocurrency, the run can last for days.
Head and Shoulders Pattern
The head and shoulders pattern is pretty easy to spot and popular when it comes to stocks. And it also works for crypto.
It pops up on all time frames — so it can be great for both day traders and investors.
I’ve gone into the head and shoulders pattern in terms of stocks before. The same principles apply to the cryptocurrency market, so I won’t go into too much detail here …
Just know that you can use it to identify both bullish and bearish trend reversals.
Key Tips for a Cryptocurrency Market Crashing
How can you make gains during a cryptocurrency market crash while minimizing your risk?
Here are some of my top tips for trading cryptocurrency during a market crash:
#1 Analyze the Coin You’re Planning to Invest In
Never buy into a coin purely on hype and speculation.
That’s how the majority of cryptocurrency traders seem to do things — but you’re better than that!
Enter cryptocurrency market analysis …
You need to bring the same type of analysis to crypto coins that you would to stocks — before you buy. Otherwise, you’re basically just gambling. And that’s just dumb.
You have to understand how different coins correlate to and react with each other, the reasons for fluctuations.
Look at the general performance of the crypto market. Use fundamental analysis, as well as economic and technical indicators to identify trends.
#2 Watch Out for Scams
Unfortunately, scams are rife in the cryptocurrency market.
Unscrupulous trading exchanges pop up, only to disappear — taking investor’s coins with them.
With the increasing value of cryptocurrencies, hackers are also more likely to target traders with phishing scams and other ways to try to steal their coins.
For both of those reasons, it’s generally best to store your cryptocurrency in an encrypted wallet on your own computer.
And be sure to keep a backup on a USB drive in case your hard drive fails.
We’ve seen major scam coins pop up as recently as 2018. Bitconnect was one of the top 20 most successful cryptocurrencies. That’s until it was discovered that it was a Ponzi scheme and shut down by the Texas State Securities Board.
#3 Search for News Catalysts
Stocks are affected by both positive and negative news catalysts. It’s no different for cryptocurrency price changes.
If you have a significant position in crypto, you should be watching for cryptocurrency market news on a regular basis.
Track news catalysts for specific coins you hold — but also for things like government regulations.
Scan regularly for anything that can affect the cryptocurrency market as a whole.
#4 Don’t Trade too Big
Cryptocurrency coins are a very risky investment … even compared to buying penny stocks.
That’s why it’s important to start small and only invest what you can afford to lose.
I think cryptocurrencies can be a great addition to your portfolio’s asset mix.
But you should never be 100% invested in only crypto. Make sure you’ve got proper diversification: stocks, bonds, and other asset types.
#5 Never Stop Learning
Even the idea of cryptocurrency is still very new. The entire market is constantly changing, shifting, evolving.
Experts have no clear idea where the cryptocurrency market will be in five or ten years.
If you’re involved in crypto, you have to keep learning.
Stay up to date on the latest crypto news and technologies. Listen to a range of experts to make an informed decision for yourself.
Apply for my now to learn patterns and analysis techniques that you can apply to both the cryptocurrency market and stocks!
The Bottom Line
Is the crypto market crashing?
It’s tough for anyone to say for certain at this point.
I’ve seen bitcoin and other cryptos bounce back 100% or more — in a single day — after a piece of good news.
But I’ve also seen them drop by just as much.
Overall, cryptocurrency is a valuable technology and could be the money of the future. So in that sense, I think it has some inherent value.
Right now, the crypto market seems to be going through growing pains.
We don’t know which coin will be the next big one, the one that everyone wants to get in on …
And I also think it’s highly unlikely that we’ll see the cryptocurrency market completely collapse anytime soon.
Are you still involved with cryptocurrency? Why or why not? What do you think is ahead for crypto? I want your comments!