There are many reasons, from high-frequency trading, the lack of regulation, and China’s crackdown on crypto. These issues have led to a crash similar to 2008 and 1929. In addition, the lack of liquidity in the crypto market has exacerbated the problem. As a result, the price of cryptocurrencies has plummeted by more than 80%. But here you can actually see the exact percentage of the crypto market if it’s going up and down.
The crypto market is suffering because of high-frequency trading, a practice in which computers quickly buy and sell large amounts of stock. As a result, the value of some coins plummeted by as much as 90% in just a matter of seconds. The same phenomenon happened to U.S. stocks in May 2010, when a flash crash erased $1 trillion of value. It panicked the entire industry but was not large enough to trip market-wide circuit breakers.
It resulted in regulators implementing measures to prevent the practice of using automated trading programs, known as algos, from moving shares outside of price bands. These fixes have reduced or eliminated flash crashes in stocks. However, in crypto, there is no such overseer.
Volatility And Regulation
In addition to its risk of causing price volatility, high-frequency trading can also exaggerate market trends, leading to more significant declines. Moreover, since it involves multiple markets, the same algorithms are often used in all trading activities. As a result, high-frequency trading can affect other asset classes and the entire U.S. economy. Therefore, it’s essential to understand how this practice works before you invest your hard-earned money in the market.
While cryptocurrency volatility dynamics are frequently disconnected from classical asset volatilities, they share some standard shocks. For example, the COVID-19 crisis, which resulted in overall market distress, was transmitted to cryptocurrencies 30 days after hitting traditional assets. Alexander and Imeraj examine the co-movement of Bitcoin risk premium and variance and show that the cryptocurrency behaved similarly to conventional investments. Other researchers have studied the dynamics of realized volatility in cryptocurrencies.
Regulators are taking an increasingly active role in regulating the digital currency industry. Their goal is to combat fraudulent activities by ensuring the integrity of markets and payment systems. However, some argue that the current regulatory framework is inadequate. While tighter regulation could slow down the market, it could also help it grow and become a legitimate investment choice for the average person. But if the SEC doesn’t do enough to protect consumers, it could ultimately have negative effects.
China’s crackdown on cryptocurrencies
Bitcoin and other cryptocurrencies are experiencing a sell-off in China, with ether down 6% on Coinmarketcap and binance down 4%. The sell-off was fueled by a broader market sell-off and investors fleeing into safer assets. In addition, earlier this month, China restricted mining bitcoin in one province, Sichuan. This led to a ban on mining activities, which forced miners to exchange cryptocurrencies covertly as individuals or overseas.
The latest crackdown on cryptocurrencies in China is a blow to the crypto industry, but the price of Bitcoin may bounce back.
This is because miners will be forced to shift from China’s Sichuan region to a country with cool temperatures and stable renewable energy supplies. This trend could boost bitcoin prices in other areas, particularly in the U.S. and Europe. As a result, the bitcoin industry will continue to grow in the West and North America, where it lacks regulatory clarity and institutionalization.
While the price of the cryptocurrency has been on the rise in recent years, some of the most significant factors contributing to its decline include changes in technology. The recent controversy over the speed of Bitcoin transactions affected the price negatively. Bitcoin went from $2700 to $4000 in just two weeks, but news reports of hacking have caused its prices to plummet.
The U.S. Federal Reserve has also talked about tightening regulations on cryptocurrencies. This has fueled concerns that cryptocurrency will be regulated by the government, which would hurt its value.
The latest JPMorgan report reveals that institutional investors have begun moving away from bitcoin and back to gold, a haven for their funds. This trend isn’t isolated to crypto but rather part of a more significant rotation away from speculative trades.
The rise of cryptocurrencies can be seen as an anti-establishment movement in several countries. Likewise, the rise of bitcoin and other cryptocurrencies in the market can be seen as an anti-establishment movement.
Regulators are putting the industry under a lot of pressure. Recently, China outlawed all crypto-related transactions and banned trading in digital currencies. In addition, the U.S. The Treasury sanctioned a cryptocurrency exchange for accepting ransomware payments.
Moreover, lawmakers in Congress are set to vote on new cryptocurrency tax rules. And the Securities and Exchange Commission is promoting stricter enforcement. So shortly, you may regulate the world’s largest cryptocurrency exchange.