With cryptocurrency being one of the new buzzwords of 2017, attention turned to cryptocurrencies recently on three different occasions: when Bitcoin hit $8,000, again a few months later when it hit $15,000, and when the price plummeted down to $7,300. Because most eyes were fresh on the cryptocurrency scene, many panicked during the Bitcoin price drop because they thought Bitcoin and other cryptocurrencies were only on the up and up. However, more seasoned investors were not so shaken. Why? Because these ups and downs have occurred since the inception of cryptocurrency.

Cycle of Cryptocurrencies

Those who have faithfully followed cryptocurrencies, specifically BTC, know that cryptocurrencies rise and fall in a cyclical pattern. That’s why many early buyers have held onto their BTC despite seemingly massive downturns.

These charts show that each year, BTC takes a dip around the same point each year, usually around January to February.

As shown, the drops can be drastic, up to 60% of value. However, around March, the value rises again, sometimes higher than the original price before the dip occurred. Understanding what causes these fluctuations can provide a sense of security to those worried about the future of cryptocurrencies.

The Ups

Being the first on the scene, Bitcoin (BTC) experienced the first ups and downs. As people especially in the tech world like the Winklevoss Twins (claimed to be the Founders of Facebook) and Tim Draper (Skype venture capitalist), began to hear about Bitcoin, they jumped on the new opportunity and hoped their investment paid off.

Because of this, others gained the confidence to buy in themselves, causing the prices to rise. As with any stock or product, value goes up with demand. Therefore, as more people began to purchase Bitcoin, the prices continued to increase. Even with dips, the prices have only risen each year.

New cryptocurrencies arrived to the game, including Ethereum, Litecoin, and Ripple. While these haven’t hit the high values of BTC, they have experienced remarkable growth over their short existences. Unfortunately, with sudden surges of growth, there are also some declines.

The Downs

In early December 2017, BTC had a wild upward swing that briefly hit $19,000 until it fell back into the $15,000 range. Today, March 21, 2018, it sits at a “mere” $8,915. Why the large drop? Again, similar to stocks, when prices are high, people sell. They want to capitalize on the gains they’ve made and pull out their money. That means the market panics and the price plummets because people aren’t buying, just selling.

The co-founder of Evercoin, Miko Matsumura, remarked on the drop saying, “The market before was clearly overheated. The only fear in the market was fear of missing out.*” People were experiencing “FOMO” and inflated the prices, making the cyclical drop that much more severe.

Additionally, regulations from countries either trying to banish or restrict cryptocurrencies makes people wary about buying, so they sell. What seasoned crypto buyers know is that there is always a light at the end of the tunnel. 

Understanding the history of cryptocurrencies and their cyclical nature can help people have more confidence than if they only looked at short-term performance. When the value of a currency rises or falls sharply, the educated crypto enthusiast can have a calm sense that it’s a natural flow of the market. Mintage understands the fluctuations in the crypto market, and our proprietary AI helps you take advantage of them. With the right knowledge, you can feel secure as you mine and take advantage of this new technology and the opportunity it offers.

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*Sources

https://www.forbes.com/sites/outofasia/2018/03/05/explaining-the-dip-what-caused-the-recent-cryptocurrency-downturn/#56c0abd05ccd