The crypto market continues its biggest correction in 2021. While hard fixes are commonplace in the crypto world, there are several factors that set this particular fix from its predecessors and point to wider issues in the crypto space.
1. Dysfunctional Coins Widespread
Many new cryptocurrencies really add something unique to the crypto world and are backed by plenty of research and development.
However, everyone wants to get a piece of the crypto pie, and for every equipped cryptocurrency such as Chainlink (LINK) or Cardano (ADA), there is an army of cryptocurrencies that have no real use cases like Dogecoin or Safemoon, or are clearly created as a joke. Investors not only lose a lot by investing in dangerous cryptocurrencies, many of these cryptocurrencies reduce the level of trust in cryptocurrencies in general.
2.New Crypto Traders Enter The Crypto Field Without Research
In a market where the Do Your Own Research (DYOR) principle has become more important than common sense, many investors are immediately entering the crypto world and buying the latest cryptocurrency they heard on Twitter. Aside from planning an investment or trading strategy, they often don’t seem to even know the project behind a particular coin.
Combined with the excitement of getting involved in the crypto space, the desire for quick gains, and perhaps the fear of hijacking, this causes some people to buy a particular cryptocurrency at high prices. Maybe a little bit of research, a quick glance at the price chart would show that a correction could be imminent.
3.Some People May Cause a 25% Price Fluctuation with a Single Tweet
The popularity of some “eccentric billionaires” has certainly added a lot to the public’s awareness of cryptocurrencies. However, their fans’ respect for them can also lead to the same fans taking sharp turns in their crypto positions based on celebrity activity on social platforms like Twitter.
This type of effect causes the price of certain coins to be pumped, as in the case of Dogecoin (DOGE), as they are only mentioned by a popular backer.
Two conclusions stand out: On the one hand, untrained retail investors can make the wrong decisions about their crypto just by following the interest and social media noise around the coin. On the other hand, the control of a particular influencer over the price volatility of certain cryptos makes them less attractive to institutional investors, if not for the general market.
4.More than 60% of Bitcoin Mining Power is Still Controlled by China
Bitcoin is currently being mined at large facilities because as difficulty increases, its process cannot be managed with small mining rigs. Many Chinese entrepreneurs have made fortunes by mining digital gold and expanding their complexes. Unfortunately, the Chinese government does not seem very happy with cryptocurrencies outside of CBDC in the trial period. Cryptocurrency bans or policies enacted by the country where 60% of BTC is issued can have tragic consequences for the relevant markets.
Moreover, some regions of China decided to put pressure on crypto miners due to the amount of electricity used in the process. A dramatic shortage in BTC mining will not only cut off the supply but also hamper the general network.
5.Bitcoin’s Proof-of-Work Consumes Excessive Amounts of Energy
Bitcoin changed the world of digital payments. Unfortunately, given its current scale and rate of adoption, the Proof-of-Work (PoW) component of the blockchain of the most popular cryptocurrency is currently causing massive amounts of energy consumption worldwide.
Transaction fees and mining power saw such an xert rise that some companies stopped accepting BTC payments. It is not surprising that a lot of attention is being paid to the “greener” cryptocurrencies and technologies built to ensure that Bitcoin works in a way that does not cause too much damage to the environment.
It is important to remember that this has happened many times before, as the bull market that lasted more than half a year seems to be weakening. We hope the market will emerge from this temporary hurdle stronger and more mature than before.