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Do you know why are cryptocurrencies collapsing time by time? What are the determinants that drive digital currencies like Bitcoin down?
No one really knows the causes of the collapse of cryptocurrencies since they can be numerous and, often, there is a concomitance of determinants.
Let me try to summarize the main ones:
- profit-taking: market is designed for earning so after a long rise in prices, the market generally corrects resulting in a fluctuating movement, in both directions, which should not be surprising. So the next time you experience a crash in cryptocurrency value, it's just because it's a part of the natural cycle of the market itself;
- ripple effect: profit-taking often creates a ripple effect. The greater selling pressure favored by these movements could in fact scare others and therefore, lead to a cascade sale, in what is sometimes called panic selling. Often this is the main reason for the cryptocurrency crash;
- support break: support is a typical term of technical analysis, used to indicate a level that supports the price of the cryptocurrency and prevents it from falling. However, if we are faced with a key support that is broken down by the price of the currency, this situation can lead to a short circuit in the market, with strong selling pressures that can cause the market to collapse;
- trend change: markets never go in one single direction This mean that an uptrend will end, sooner or later, and will be replaced by a downtrend. When an uptrend ends and a downtrend begins, buyers are generally unable to generate upward pressure. This movement often ends with a last push to the upside of the price, before a big downside collapse;
- the death of a cryptocurrency project: Most cryptocurrency projects are start-ups and by definition of startup most of them do not survive. A crash by a cryptocurrency project can therefore scare the market;
- regulatory restrictions: even if today the climate around cryptovaltues is more serene, it is still possible that a sudden regulatory restriction by a key country could generate discomfort in cryptocurrencies and, therefore, pressure to sell.
I hope that give you a quick understanding of the market.
As I said there is no golden rules but what I call experience rules....the ones you build with your experience into a specific market.
