After significant increases in recent years, the crypto market has now started a significant decline. Of course, everyone knew that the cryptocurrency market was very volatile, but the decline seems to be continuing. What causes this and how can you respond to this downward trend? We found out.
One of the main culprits in the cryptocurrency market trending down is a new cryptocurrency called TerraUSD. This is one of the so-called stable coins. The crypto currency has been developed in such a way that it has a fixed value. In this case, 1 TerraUSD equals 1 dollar. In theory, the currency has a stable value so that it can be used as a scale when switching from one crypto currency to another. Cryptocurrencies are often not interchangeable with each other, so you have to go to a middle station first.
The reason TerraUSD had a stable rate is due to the interaction the coin had with another crypto coin that was specially developed for it. Generally speaking, it all boils down to an algorithm that keeps the coin stable by allowing one coin to trade with another coin. The whole principle is based on the fact that people want to trade with Luna. That goes well for a long time, as long as there is trust. Once that is no longer the case, the price will drop. At the moment, TerraUSD is far from stable, and therefore we can say that this principle does not work.
Why are the well-known cryptocurrencies falling so fast?
The price of Bitcoin is also falling sharply. The reason Bitcoin has had such a big impact is that the initiators of Terra took into account that their stablecoin might not be able to hold its value in times of crisis. Therefore, the company has accumulated a large Bitcoin reserve. By selling Bitcoin so you can buy back TerraUSD to keep Terra at $1. The result is that large amounts of Bitcoin have been sold, thus bringing a large amount of supply to the market. This causes the price of Bitcoin to drop.
raising the interest
Another reason for falling prices in the crypto market is that investing becomes less interesting. Central banks raise interest rates to keep inflation low. This means that borrowing money becomes more expensive and less risky investments like bonds become more attractive. Saving is also becoming more interesting again.
base of coins
Coinbase is not doing well. The largest crypto exchange lost more than 85% of its market value. Coinbase revenue has plummeted as there are far fewer people trading through the platform. All these factors ensure that the prices of all cryptocurrencies go down hard.
Speculate on decline
Even so, it is still possible to make money while crypto market prices are falling. You can do this, for example, by speculating on a general drop in the price of Bitcoin or, for example, in the price of Ripple. You can do this by shortening. If I cut you, a fall will give you a positive result. Of course, that is very interesting considering that the price of Bitcoin can sometimes drop by 10% in a day.
See it as a buying opportunity.
If cryptocurrencies drop, you can also see it as a good buying opportunity. If enough people come in, the price will go up again. Due to the upward movement, more and more buyers are coming in and before you know it, the cryptocurrency is back to the previous price level. Research interesting altcoins and see which ones are worth investing in. If altcoins in dollar value have fallen a lot, but those in BTC value have fallen much less, this may present opportunities. If Bitcoin goes back up, these coins will go up with it.
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