Why Bitcoin's Value is Plummeting While TerraUSD's Continues to Fall


Why Bitcoin's Value is Plummeting While TerraUSD's Continues to Fall

Why Bitcoin's Value is Plummeting While TerraUSD's Continues to Fall

Make no mistake, the bear market in the crypto industry shows no signs of stopping anytime soon. Bitcoin (BTC) touched an 11-month low on Thursday, and you don’t need to be an expert to see that it’s not alone in its decline. With just over $9 billion in total market cap across all cryptos and $8 billion held by Bitcoin alone, the world’s first cryptocurrency has declined more than 62% since it peaked in December 2017 at just over $20 billion in market cap.

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China Has Cracked Down on Cryptocurrencies

In a move that has rocked cryptocurrency markets, China announced earlier today that it will crack down on cryptocurrency mining and trading. The country’s three largest bitcoin exchanges have already halted withdrawals for one month. Another large exchange, BTCC, is set to close its domestic exchange by October 31st. This news comes as China seeks greater regulatory control over financial technology and following President Xi Jinping’s repeated calls for greater cyber-sovereignty. The crackdown has resulted in steep declines across all cryptocurrencies, with bitcoin dipping below $3,000 and BTC/USDT falling more than 11 percent overnight.

People Don't Want to Hold Virtual Currencies

The main reason that people want to hold virtual currencies like bitcoin and terraUSD is because they believe that these currencies will appreciate in value. This was true when Bitcoin soared from just a few dollars per coin up to $1,200 in late 2013, but since then, it has been on a steady decline. The same goes for terraUSD which has lost more than 75% of its value since peaking at over $40 per token in December 2017. Once again - no one wants their holdings in cryptocurrency if they are continually losing value. People would rather buy and hold USTD or physical gold instead of BTC or terraUSD because it doesn't diminish over time.

What Causes This Kind of Volatility?

Volatility can cause a lot of problems for a currency or commodity, particularly if its value is seen as unstable. For something like BTC or USDT, which has little-to-no intrinsic value, these fluctuations are almost entirely based on perception. The market has been volatile over the past few months; many will attribute that to a number of factors—some related and some unrelated. Just earlier today, BTC fell 5% after Goldman Sachs announced they were putting their crypto trading desk on hold until further notice.

The Volatility Index – VIX

The volatility index (VIX) measures market expectations of 30-day volatility and serves as a barometer for investor risk appetite. VIX values of 15 indicate low levels of volatility, while readings over 25 indicate high levels of fear and uncertainty in markets, which can often lead to fast drops in U.S. stock prices. The VIX was initially introduced by stock options traders on October 3, 1993 and represents an estimate of expected volatility over a period equal to one standard deviation (usually one month). It was created by Professor Robert Whaley at Duke University’s Fuqua School of Business after he noticed that previous studies were finding it increasingly difficult to make accurate forecasts about stock returns based on historical data alone.

How Should Investors Respond?

If you're an investor looking for stability, it might be time to start eyeing other opportunities. If you're a speculator who isn't worried about losing value, there are other cryptocurrencies that may have brighter days ahead. BTC, however, is likely to continue its slide down before it recovers. Either way, it's best not to put all your eggs in one basket; diversify with investments outside of cryptocurrency if you want your portfolio and wallet to survive 2018.

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