Steemit Crypto Academy Contest / S1W4 – Reviewing the Instability of the Crypto Market by @ngoenyi.

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Hello friends, it is another great week in cryptoacademy engagement contest. Hope you all are doing great. I am ready to take part in this weeks contest entitled The instability of the crypto market.

This contest is very timely considering the current situation of the crypto market in order to keep us all informed of what is happening so that we camln make informed decision.

So many of the cryptocurrency market is currently experiencing a sharp decline, especially in recent days. What do you think of this drop? Kindly State its causes and how long do you think it will continue in this downtrend?

What do I think of the drop

Market price drops in synonymous to cryptocurrency market. For every market that exist, be it stock market, commodity market, currency market, etc, there is always a period of price decline which benefits some while others are left devastated.

Cryptocurrency market is a very volatile place. It can change a person to become a millionaire or turn you into a pauper overnight. So it is always expected.

There are several factors that affect cryptocurrency prices. These factors are

° News that are related to the crypto space

° Financial analysis

° Business activities going on within the crypto space.

° Forces of supply and demand

° Government regulations.

° Historical analysis.

We have seen all these factors coming into play, leading to either massive drops or increase in prices of crypto currency.

Let us just cite some examples. When Elon Musk twitted that he now accepts Bitcoin for Tesla products, that led to a very high bullish momentum in the price of bitcoin($65,800), thus having a positive effect on all other cryptocurrencies, since all of their prices jumped up.

Again when the same man twitted that he will not accept bitcoin anymore, we started seeing massive drops in price in bitcoin($28,500) and other crypto currencies. This is just an example of one of the factors that affect the crypto market.

We also know that in every market, the forces of demand and supply comes into play. So when prices go up and most holders are in profit, there is every tendency that they will take the profit on investment. This will lead to another fall in prices of cryptocurrencies especially when it affects bitcoin.

Write down its causes and how long do you think it will continue in this downtrend?

There are so many causes attributable to the current drop in prices in the cryptocurrency market. First, we should understand that their is what we call crypto cycle. This have been happening steadily without questioning since the existence of cryptocurrency. The crypto market has a 4-year cycle. That is why you hear people talk about bearish cycle and bullish cycle.

Right from the begining, this have been occuring. In 2012, btc went up to about $9,000, which was almost at the end of the 4 year cycle, but crashed, forming a low or support area below $1000. This is about 80% price crash.

From 2013 -2014, another cycle started. Bitcoin picked up again till it created another high in Dec 2018 of about $19,900. What happened again? We saw another crash that came, the price plunging to $3,156 in 2019. This is about the same 80% dip in price. These dip in prices come with so many stories of blockchain failures, fraudulent attacks and so on as we are experiencing right now.

From 2019 started another 4 year cycle of which we had another price peak of $65,800. Having attained this peak. We are still close to the completion of that cycle.

So going by this historical analysis, We should expect a heavy correction to take place in the market and the market repeating history once more. Judging by the previous dips of about 80% and taking the peak price of this cycle to be $65,800, I envisage the price of bitcoin dropping to as low as $13,000.

I know so many will be shocked at this analysis, but that will come to pass. This is the time of distribution, the masses will be expecting the price to push at certain supports and buy more at those supports, but will end up selling out of fear, anxiety and frustration. Thus giving the whales who have been sitting and watching, the opportunity to buy up whatever is in circulation in the accumulation phase as paper hands sell off their crypto assets.

Once the accumulation phase is over, the price will start moving gradually and create a new price peak before the end of the new 4-year cycle.

So many news will come causing many companies to sell off their bitcoin, leading to much supply in the market and eventual drop in prices. These companies are taking profit on their investment while creating false hopes of price increase for the masses. They are only encouraging them to buy and sell them off when the price dips. For me, the market is purely manipulated.

So the downtrend will continue until the price correction is done or the whales feels that it is time to buy and push up prices in the market once more.

To further confirm my point, let us look at the chart below.

From the chart above, we can clearly see the dip as it evolves. The support have already been broken. The next major support is at the range of $11k to $13k. The other ones before it are just moderate supports, which can easily be broken through.

Whatever news or statements made by leading figures is just to incite uninformed holders to buy, only to sell of at losses in no distant time.

Why is it that this drop in the price of a few coins does not decrease their trading volume (eg: Bitcoin)? How will this market instability be dealt with?

We need to understand what trading volume is to answer this question. Trading volume is the total number of coins that exchanged hands between the buyers and the sellers at a point in time. So the trading volume helps someone who wants to trade a particular asset to know the level of activity of the asset and its liquidity. The liquidity of an asset is the ability to buy and sell at any time you want to. So high trading volumes implies high liquidity for the assets which is more than positive for the asset.

So their trading activity does not drop because of the prevalence of so much buyers and sellers in the market. So many persons are trading the asset, giving credence to the high liquidity of the crypto assets. While some are selling off to take profits, others are buying for holding, expecting that this is the best price they can get the asset at.

So that is exactly what happened in the case of Bitcoin and USDT, since many traded there USDT to acquire bitcoin at a low price.

° One of the ways to deal with this market instability is to encourage holders of assets to stop dumping their assets by providing a yield farm with an impressive APR.

° Another way of dealing with it is to inject funds into the system to mop up the excess supply in the market.

° The community of the various coins in the market with unlimited supply can agree on increased burning rates to reduce supply of assets in the market.

° Hardforks can be applied to reducing the minting rate of these coins in excess supply.

What relationship is there between the current instability and the downfall of the Terra ecosystem and its Luna currency? Or Do you think its price will bounce back? If so, tell us how and when?

Relationship between crypto market instability and Terra downfall

What happened to the Terra Ecosystem have a direct bearing on instability of the market. Let us remember that in a bid to successfully help out the luna ecosystem, the LFG sold out over 42k Btc worth $1.5B to help stabilize the market. That in effect lead to so much supply of bitcoin in the market thereby pushing the price downwards, simply in obedience to the economic law of demand and supply.

So many theories have come up on what could be the reason for such down fall. It is just the whales taking advantage of the market. Kindly see this statement below.

The thread speculates that the claimed attacker had a major Bitcoin short position and wanted to push the price of Bitcoin down. By selling whale-size UST holdings, the attacker would cause panic, pushing the LFG to offload its Bitcoin to save UST, and tank the cryptocurrency’s price. As things went south, the thread calculated that the hacker made a profit of over $800 million.

reference

So we can see that this is a deliberate and calculated effort of some whales to milk the crypto market. Taking the market down to give them the opportunity to buy again at a low price.

So UST's downfall contributed a lot to market instability this time.

Will it price bounce back, if so when and how

Well, the price will bounce back if the issue is managed well. So many have seen their million dollar investments becoming just tens of dollars. Till date there is no reliable information on what caused the rubble. There have been some other coins that have experienced such heavy loss in value like Sun coin that was formerly up to $58 but now is only about $0.009.

It is really going to take quite sometime to bounce back to where it is coming from. So many suggestions have been given on that, like-

Applying a hardfork to create a new blockchain creating a new cryptocurrency in the process. They are still in the process of voting to decide on what to do. But many have lost faith in the project unless the value of their former luna holders will be given back to them. But that seems impossible.

Source

We will just watch and see what happens.

In Our Steem ecosystem, like most currencies, has been affected by this market downturn, has this caused you as a user some stress? Or do you still have confidence in this project? Kindly Give your opinion, specifying the arguments that support your review

The steem blockchain was also affected adversely by the dip in the market. The prices of steem and SBD went down drastically by 30% and 26% respectively.

The dip in price of steem have greatly affected me. thus affecting my purchasing power a lot. Psychological and emotionally, it is seriously weighing me down.

I am still very confident in the steemit project and would advise that its management learn from the experience of luna. They should put in place checks and balances to forestall such from happening in the steem blockchain.

Conclusion

The crypto market is very volatile and every investor or trader should be aware of. The risk is very high. From my submission in the first question, I still expect the worst to happen in the market after the effect of the Terra downfall is cushioned.

However, despite the downtrend, there are coins that will beat the odds and I personally hope that our beloved steem coin will be among those ones.

I also sincerely wish that bitcoins dominance over the crypto market will entirely be eradicated. This will allow us all to see the true value of any project and its token.