Could we have predicted a crash in cryptocurrencies in January? According to the historical charts it has happened before for the past few years. With so many new and inexperienced traders entering the markets looking for a quick buck they become fueled by FOMO and FUD. Those that do not understand the technology or what they are buying into will simply jump on a crypto bandwagon they’ve read about on some out of control Facebook page. Likewise they will drop it just as quickly after reading some unsubstantiated fearmongering from questionable news sources.
FUD has been winning over the past week as markets lost over 40% of their total combined market capacity. Constant bad news out of China and South Korea has just added gasoline to the digital fires. Panic selling has ensued and the drop off has compounded sending Bitcoin and its brethren into the abyss. Or so it may seem.
Hold on a moment and zoom out to the three month chart and you will notice the upward trend is still being supported. Three months ago the total market cap for all cryptos was $160 billion, today it is $540 billion which is an increase of over 230% for the period. Panic selling is driven by fear and inexperience in an embryonic market. However there may be a pattern here if we consider that there has been a major market correction in January for the past four years.
This year it has been exacerbated by this influx of newbie traders who probably didn’t even know what an altcoin was this time last year. It has been speculated that there are other influential factors such as the impending end of the tax year or the expiration of the first Bitcoin futures contracts.
Furthermore a major Asian holiday is approaching in the Chinese Lunar New Year next month. Asia is responsible for the bulk of crypto trading so what starts there sends sentiment west as the day goes on. An Asian selloff for the holiday period, which needs to be funded in fiat not crypto, could have been one of the catalysts this year and previous. People will be taking extended periods off work to travel and visit family, cashing out some of their crypto could be a way to fund this.
Of course this is all speculation but the chart patterns in previous years do not lie. The January dip is a normal movement in the world of crypto and at the time of writing markets look like they’re already slowly starting to bounce back.