SPOTLIGHT ON REASONS BEHIND CRYPTO VOLATILITY
The price of Ethereum jumped overnight as traders started to buy cryptocurrencies in the lows. Other cryptocurrencies too like Bitcoin and Ripple jumped by more than 4%.
Even with the rally, the price of cryptocurrencies has been battered over the past week. It all started with the forking of Bitcoin Cash, a currency that was derived from Bitcoin in 2017. The creation of a new currency led many to believe that digital assets held little value if a new crypto could crop up so easily.
The focus within the crypto sphere has very much been on how ‘bubbles’ begin and how they burst. Such trends have been observed for hundreds of years. In the Netherlands during the 17th century, people bought tulips in what was known as tulip mania. People believed that tulips had a lot of value, until the price dropped and they lost money. In the 90s, after technology companies saw increased success, Wall Street investors started throwing money at any dot-com-related company. This led to a massive overvaluation of many companies that had no reasonable sales. Ultimately, the bubble burst and investors lost a lot of money.
This is likely what happened in the cryptocurrencies market. Since the release of Bitcoin, the ease of creating new cryptocurrencies had led to the industry being oversaturated. It also led to the creation of many currencies that had no value. A good example of this was the Useless Coin that raised more than $35000 despite telling investors the following:
You're going to give some random person on the internet money, and they're going to take it and go buy stuff with it. Probably electronics, to be honest. Maybe even a big-screen television. Seriously, don't buy these tokens.
In 2017, as the price of cryptocurrencies rose, people from around the world started to invest in them. They did this not because of the value they were buying but because they were afraid of missing out. This pushed the price of ETH to more than $1300 and Bitcoin to almost $20K. As the price started to drop, the same investors started to sell their coins, which has pushed their prices lower.
As of this writing, the ETH/USD pair has risen to 114. This is higher than the weekly low of 97. The RSI has moved from 7 to 44. The double EMAs appear to be cooling down, with the 15-day EMA starting to cross the 30-day EMA. In the short term, the pair could see a relief rally. However, in the medium-term, the weak sentiment will likely see the pair continue the downward trend.