By This is an interesting and important crypto question. Here at CoinBeat, we get asked this on nearly a daily basis and we will try to answer it as best we can. To start with, we will have to break this question down into three parts to give you the best answer we can.
- When is the market going to correct itself?
- Is this correction correct?
- What are the predictions for the crypto crash?
To begin with, the market correction that is currently well underway is a normal part of financial and asset markets. A correction happens whenever new information is introduced to a market, either over-speculation or undervaluation happens, or changes to the market are imminent. In the case of cryptocurrency, all three of those potential reasons for a correction were present and it should have come as no surprise. Most professional traders and brokers, both in cryptocurrency and conventional markets, predicted this type of correction for some time now.
- When is the market going to correct itself?
The market, in theory, is always correcting itself. The function of any market is to evaluate and establish a price of an asset and provide a medium for the exchange of that asset. The slight changes in prices on a minute-by-minute level are thus corrections that reflect the overall market sentiment in pricing an asset. The market is constantly correcting itself and attempting to give the most present valuation of a cryptocurrency.
One of the biggest misconceptions of a correction is that it is a downward correction. Corrections work in both ways.
For example, if the price of Bitcoin or another currency is perceived to be too low, through social consensus, an immediate upward correction will result.
What is the social consensus?
Social consensus is the way all things on the planet receive their valuations and market price. Gold, property, stocks, bonds and currency all are valuable due to the social consensus on the open market. Things like water, food or air are the only things that don’t fall into this category as they are human requirements for existence and, because of relative abundance, are not usually held to the same principles. These are needs. Any want is priced by social consensus.
For example, two houses, exactly the same but in different neighborhoods, could have entirely different prices. That is because, through social consensus, the point where the maximum buying price and minimum selling price of an asset meet are greatly different. One of our team members learned a great example of this at school when a friend of his from an African nation explained where most of his family’s money came from. His family would buy wheat, rice, and other non-perishable foods and trade them in their home country’s rural regions for rocks that the villagers would find. These rocks had no value to them and they would think this boy’s parents and grandparents were crazy for accepting rocks for food. They would then take those rocks to America and sell them for thousands of times the value of the food that they traded them for. These rocks were Diamonds.
The moral of the story is that social consensus changes from person to person, and situation to situation. The markets attempt to address these changes and quantify them in the form of slight corrections that are happening constantly. A trader or investor attempts to speculate on the future social consensus of an asset. In the example above, the grandparents of this young boy were traders, or brokers. They saw that a rock in their homeland could be sold for more at a later date and invested in that asset to garner a return. All for-profit businesses are thus a form of trading and brokerage.
So, getting back to the question of when the market going is to correct itself:
The answer is constantly. It will continue to do so indefinitely or until the asset becomes a basic human need, or is no longer used, sold or traded in any way, shape or form.
- Is the correction correct?
Based on the above principles of social consensus, a correction is always correct. To some people, this correction is very correct; to others, this correction is very wrong.
If you believe the correction is correct, then you likely are a person who believes Bitcoin and other cryptocurrencies were in a speculative bubble that was based on poor market principles and thus the price was too high for current demand. If you believe the correction was wrong, then you likely believe the technology will have a huge value increase in the future and thus will one day be sold for much more. No one knows which one of those viewpoints is absolutely correct. Whoever says otherwise is simply stating their opinion and personal position to whichever side of the fence they are on, and likely believes their opinion is the absolute truth – which, of course, isn’t necessarily true.
As far as our personal opinion here at CoinBeat, Bitcoin is a technology that has tremendous potential. That being said, most people don’t understand the technology and fewer still understood why they were investing in that asset. The speculation on price was not based on potential use or proven usability, but rather amateur investors who looked to get rich quickly.
This demand, by the sheer volume of those individuals, caused prices to grow disproportionately to the current positioning of the technology. In our opinion, Bitcoin is yet to prove its potential completely. Most cryptocurrencies remain untested and the government has yet to regulate them. All these factors meant that the price of a Bitcoin at $20,000 USD was not sustainable through social consensus.
For example, if the government was to ban or make Bitcoin illegal, it would not be usable by the masses. If the technology was to get ousted by a better technology, it would no longer be valuable and these factors all meant a correction was imminent.
On the other hand, if Bitcoin was to prove its usability, fix its scaling issues and become legal and accepted by the governments and financial sectors, its value would skyrocket. As those things have yet to happen, a correction to a lower, more acceptable value was inevitable. The investors into Bitcoin, or other cryptocurrencies, are betting that one day those conditions will be met. If you didn’t invest considering those conditions, then you had no business investing and likely invested for a quick return that was speculative on further demand only. That was a mistake. Professional traders investing in long-term positions knew that the overall market could not sustain such rapid positive price moves, considering the current market metrics.
- What are the predictions for the crypto crash?
The “crypto crash” was inevitable and will likely see more serious investors take closer looks at the sector as a result. Most people are unaware of many of the principles covered in this article and were ill-equipped to make investments into the crypto space. When everyone in the space seemed to be making huge returns, FOMO (fear of missing out) took root and mass hysteria created a price valuation for many cryptocurrencies that were simply not representative of the sector.
CoinBeat’s prediction is that the crash or correction will actually bring a lot of the bigger investors to that table. These investors don’t buy assets for short-term gains or buy into bubbles, as their financial advisors do proper analysis and build strategies that are representative of the sector. This means that the overall volatility will subside and the prices of these technologies will be more accurately reflected.
Additionally, we think while governments have remained on the sidelines through the beginning stages of the cryptocurrency revolution, they will no longer be able to remain out of the space. We will see mass regulation and government controls put in place to protect investors and reduce fraudulent uses of the technology.
For example, the ICO marketplace is filled with what are IPO’s masked as cryptocurrencies, instead of general stock. This means that, while in an IPO, investors generate capital for a company and are given a share, in an ICO, investors do the same but with far fewer regulations in place. If an IPO was to go under, regulations and the SEC (Securities Exchange Commission) would be able to investigate and charge potential fraudsters. With an ICO, if the project fails, investors are left without that layer of protection and accountability. CoinBeat looks to help would be investors into that space and make sure to read about our ICO of the week and other ICO reviews for valuable insight to help avoid such pitfalls.
We also believe this will not be the last crash or correction, as Bitcoin and cryptocurrencies are still in their infancy. They will likely spawn new bubbles, based on speculation, that will inevitably pop and be corrected by the free markets. We also believe that, as the technology improves, becomes less speculative and more proof-of-concepts make their way to market, the market volatility will decrease, and the prices of those projects will skyrocket.
The Future of the Crypto Market
According to the World Economic Forum, cryptocurrency is expected to grow 4000% in market capitalization over the next 5 years. Though many assume it will be Bitcoin or similar top-tier currencies that take the lion share of this $10 trillion-dollar pie, we at CoinBeat believe it will be newer projects that advance the technology and build on the older projects in the sector.
For example, Facebook eventually took market dominance from pioneers like Myspace. Google, and eventually took dominance from AOL. These are natural market cycles that will happen over the next decade.
Finally, we think these types of crashes will bring the need and use of professionals to the sector.
For example, if you were going to invest in the stock market, 99% of people would hire a professional or entrust their investment to a brokerage of professional traders. These traders would then advise and trade, ensuring that you and your portfolio was generating returns, but with as little risk as possible.
Unfortunately, in cryptocurrency, 99% of people assume they are these professionals. They fail to understand some of the very basic principles of investment and fail to hedge against risks. You pay a surgeon because you trust their education, experience and that their quality of service will be higher than what you could perform on yourself. We at CoinBeat think, in the future, investors will begin to understand that professional traders and financial advisors are also worth their fees and can invest better on their behalf than they can do for themselves.
How to Find Professional Assistance
The main problem currently is that these professionals are few and far between. When you have hundreds of unregulated people claiming to be pro cryptocurrency investors and traders, the general public is unsure of where to turn. Companies like CoinBeat look to address this industry shortcoming.
CoinBeat is a publication and resource that connects cryptocurrency investors with professional cryptocurrency traders, analysts, and writers. Through the CoinBeat, investors can copy or mimic the portfolios and positions of these professionals and piggyback on their knowledge and expertise. While finding professional services may still be a few years away, using CoinBeat can give you the edge and keep you ahead of the industries informational curve. Make sure to subscribe to CoinBeat’s newsletter for the latest from around the sector.
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