What Would Happen if Bitcoin Suddenly Crashed
The most popular cryptocurrency bitcoin and other crypto assets are undergoing a significant and continuous price correction. Many state agencies warned the investment public about the possible realization of such risks by publishing Information on risks of investing in cryptocurrencies and ICOs, as well as additional information on virtual currencies and risks of investing in virtual currencies. Due to the extreme volatility of crypto assets, which poses a special risk to small investors, one has to be very aware of everything that can go wrong when such investments are pursued.
Crypto assets (virtual currencies, cryptocurrencies, digital tokens, etc.) are still in most parts of the world an unregulated form of investment accompanied by a high level of legal uncertainty. In December 2017, bitcoin briefly exceeded the price of 19 thousand US dollars, and now the world’s most important cryptocurrency has lost over 40 percent of its value since reaching a record $ 69,000 last November.
The decline in value intensified after the minutes of the Federal Reserve meeting in December hinted that the US Federal Reserve would withdraw its incentives from the pandemic era. The mentioned comments started a sale on global stock exchanges, which spilled over into cryptocurrencies. Bitcoin optimists often describe the most popular cryptocurrency as an asset unrelated to traditional financial markets, but experts have noticed growing parallels in the movement of bitcoin and stock prices.
The following are just some of the risks that are often associated with cryptocurrencies:
Investors in cryptocurrencies are very often exposed to various attempts at identity theft via the Internet. Impersonators try to persuade investors to reveal personal information, especially passwords or private keys (private key, seed words) by typing it on a fake website, a link given on a social network, or via a message. Fake websites and messages from people who want to illegally obtain personal data and financial resources of investors are very similar to websites and messages from authentic service providers, which makes them often very difficult to distinguish.
Insufficient availability of reliable information
The cryptocurrency market is characterized by a high level of information asymmetry, i.e. in such markets, there is generally no clear legal obligation to inform all participants about information relevant to the formation of the price of traded products. This is why traders find it hard to assume in which direction the prices may go, and many of them opt for automatic trading software like bitcoin-revolution.software/ .
Violation of market integrity
A significant number of indications point to the widespread occurrence of manipulations or attempted manipulations in virtual currency markets, which is especially evident through the so-called pump & dump groups on various messaging services. Also, the crypto asset market often doubts the veracity of significant information, the existence of false trading volumes in markets, and the questionable credibility of some stablecoins (virtual currencies that should be tied to the value of fiat money or other assets like gold).
Security risks of information systems
Given the nature of crypto assets, the security risks of the information systems on which they are created, stored, and traded are ubiquitous. Investors must be well acquainted with the technical side of the information systems they use, as well as with the technical and legal certainty offered to them by service providers.
So, what would happen if bitcoin crashed?
One says that people are generally divided into two groups, those who strongly believe coins like bitcoin play an essential role in digitalizing the whole financial world, and those who constantly see this as a scam. No need to mention how strict is the line dividing them. And from time to time their different emotions arise among these two groups. When there’s an increase in the value, everyone grows with hope, investing even more. But in times like this, when the value goes down, pessimists speak out spreading doubt among those who do not even know why they’ve invested in the first place. What causes additional pessimism in the market is the formation of the so-called cross of death – an indicator that suggests great pessimism of market participants.
The cross of death is an indicator that belongs to technical analysis, and which is popular among large investors in financial markets. It is a situation in which the 50-day moving average on the price chart of an individual instrument falls below the 200-day moving average, and the frightening name came about because such a situation often precedes a big drop.
However, the death crosses we witnessed last June, late March 2022, and October 2019 were bear traps or false signals that marked big price lows. The consolidation seen after the death crosses in mid-June last year had an epilogue in new record prices. So, who’s to say that everything going on now, is not the same thing happening again?
One thing is promised, and that is the volatility. It will never cease to exist on this market.
We guess that what many of you readers are wondering now is what to do if the situation continues…
There is no universal advice promised to be effective in any situation. What was seen in the past is that, as we mentioned, every drop promises a new rise in the price. So, maybe it’s best to be patient. But, whatever you do, do not try to predict the price.
If professional investors with hundreds of years of models and data in their hands can’t predict price movements, neither can you. Another strategy is to buy more during a fall. But in no case should you believe that this is the bottom, trying to “catch a falling knife” – or you will cut yourself. Remember, whatever strategy you choose, you must always adhere to this first rule.
And, whatever you do, don’t panic. Yes, that is easier said than done, but the most important thing is again – not to panic. The bear market is a time of strict discipline and caution, and before making a decision you need to study the subject and weigh everything well. Act clear-headed.