“All the hype and all the speculation attracts retail investors into the market before the mother of all crashes happens”. These words do not come from anyone, but from a true investment legend. Hedge fund manager Michael Burry, who became known about the Hollywood film “The Big Short”, warns his followers about the dangers of the crypto market via a tweet. A short time later, however, the message had already disappeared and with it the entire profile.

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The background to the warning was a psychological analysis of retail investors. Should they become panicked or impatient, the selling pressure on the entire industry would increase and dissolve a market capitalization in the billions over time. In the meantime, digital currencies are already used to being subject to a certain degree of volatility.

3 Arguments for Falling Prices

Now Wirtschaftswoche lists three reasons for and against a crypto crash. These are the arguments for a further decline in prices:

  1. Cryptocurrencies have fallen below major support brands
  2. States are becoming more active in the fight against digital currencies
  3. Institutional investors are terrified.

In fact, the Bitcoin as the great flag leader of all virtual currencies had to accept heavy losses recently and under step also the psychological limit of $30,000. Technically, many investors may have set stop-loss marks here, which are now triggered and thus increase the selling pressure. A momentum strategy is often used here.

The losses were not accidental. Renewed bad news from China, which closed down entire mining farms, caused the market to falter. This is also likely to have an impact on institutional investors, who are currently feeling the great uncertainties of the market after a long period of growth.

3 Arguments for Rising Prices

But the opposite side also has its arguments. And so Wirtschaftswoche also cites three pro-theses for a return to higher prices:

  1. Crypto Access Easier than Ever
  2. Legalization & Legitimization are imminent
  3. Cryptocurrencies are still a good investment alternative to classic assets

Meanwhile, digital currencies have actually experienced so much influx that the increased competition has significantly improved the accessibility to the individual coins. You no longer need to be a technology expert to set up a wallet. In addition, there are also all sorts of state advocates who do not support China’s course. Recently, news was reported from El Salvador, which now recognizes BTC as the official payment method. In smaller countries in particular, there is often agreement. Should the cryptocurrencies now actually also prove to be inflation protection, then there could also be a trend reversal in the long term.

Photo by Conor Samuel