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What Caused (yet Another) Cryptocurrency Market Plunge This Week?

This week felt like déjà vu again.  Thanks to an 18% fall in the price of Bitcoin Cash (BCH), every major cryptocurrency in the global market started to record intense sell-offs. Bitcoin (BTC), which has been relatively stable from August to November, fell by more than 11% on the day, accelerating the downtrend of other leading digital assets and small market cap cryptocurrencies.

What Caused (yet Another) Cryptocurrency Market Plunge This Week?

The sudden drop in the price of the no1 crypto, Bitcoin relates to the so-called “hard fork” of bitcoin cash, whereby the digital asset will effectively divide in two to form a new cryptocurrency. Bitcoin is now nearly the same price as it was this time last year. After December 2017 and January 2018’s hysteria, Bitcoin has enjoyed its lowest level of volatility this month.

Generally, its hovered around the $6,200 to $6,500 range and has seen fairly strong support at $6,200. Over the last 3 days a fairly unique market event with bitcoin cash blockchain, forking. Any fork event creates disruption in the marketplace. That’s really has been the driver for the price action.

Donald Bullers, North American representative for the blockchain firm Elastos, said “It’s safe to say that bitcoin cash’s upcoming hard fork stirring uncertainty among crypto investors, and forecasters across crypto and traditional markets alike have predicted a prolonged bear market heading into 2019:

Crypto investors have proven to be highly reactive to changes across the landscape, and this dip could be the most recent case study of that phenomenon.

The event is nothing new to the crypto world. This has happened before. The original Bitcoin protocol which was established over a decade ago and was forked over a year ago with a new blockchain, bitcoin cash created. The reaction by the markets was the same. Although the price of bitcoin has fallen in recent days, overall BTC’s price has increased dramatically since its creation a decade ago. 700milion% to be precise.

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Bitcoin cash, which split from the original bitcoin blockchain, has split in two again, creating a third cryptocurrency. The two digital currencies will go by the names Bitcoin ABC (core Bitcoin Cash) and Bitcoin SV (Satoshi’s Vision).

Bitcoin cash, rising as much as 50% over the last few weeks before falling sharply more recently. We wrote about the Bitcoin cash surge last year and the technicals are not dissimilar.

In order to support the market and reassure investors many major bitcoin and cryptocurrency exchanges including Coinbase, Binance and Bitfinex, have stated they will support the hard fork. Investors that own bitcoin cash will receive 1:1 per new cryptocurrency.

Despite the chaos with Bitcoin Cash reinventing itself. Cryptocurrency has been, in comparison to other assets classes, very stable. Blue chips are down 17%, small caps have retreated 25% with bond and equity markets seriously correcting. XRP has grown 47% over the 3month period

In general

Currently, the majority of investors and traders in the market remain hesitant towards engaging in large positions or taking high-risk, high-return trades, mostly due to poor market conditions and dismal growth year for the cryptocurrency. Volumes across all exchanges are weak, trading activity is low and the sheer intensity of the recent drop of the crypto market has certainly knocked confidence and curtailed sentiment of a corrective rally.

The $27 billion drop in total market value in a 24-hour period could lead to weeks or months of consolidation period before initiating a proper short-term rally. The uncertainty in the market has allowed the crypto market to weaken.

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There is an upside to all this uncertainty and panic. One positive takeaway from the correction is that cryptocurrencies have started to show independent price movements with less dependence on Bitcoin. In the past several hours, Ripple (XRP), Ethereum (ETH), EOS, and Litecoin (LTC) have recorded a 2 to 4% rebound increases in price against the US dollar, while Bitcoin lounged at around $5,600. It’s perfectly plausible that the market sees a decline in the dominance index of BTC, especially if large market cap digital assets begin to perform better.

Previously last month, eToro managing director, Iqbal V. Gandham commented on Bitcoin’s low volatility was “forming a wedge” which meant “sharp move either up or down” was “imminent”. Mr Gandham’s predictions came to fruition on Wednesday when more than 10% of BTC’s value was wiped out over the course of a few hours.

The outlook for the next two months

Since early September, bitcoin had traded in a narrow range between $6,000 (£4,695) and $7,000 (£5,477), following months of steady losses that had seen it fall from a high close to $20,000 (£15,650) in late 2017.

History tells us, the last time the bitcoin price was below $6,000 for any significant time was November 2017 and that started the famous “Bitcoin bull run.”

But despite the correction this week, some experts have anticipated a price surge over the final weeks of 2018, calling the reduced volatility the “calm before the storm” Traditionally, before Christmas, a “Santa rally” is popular across financial markets.

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Danny Scott, co-founder of crypto exchange CoinCorner, Bitcoin’s price could attain $15,000 (£11,732) by December. He said: “If you look at historic trends, November and December typically have been our busier months. “We are also seeing huge amounts of investment coming through from high net worth individuals and companies buying Bitcoin in high volumes.”

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