The prices of Bitcoin and Ethereum have been acting more erratically than usual it seems. Obviously the fact that it is a cryptocurrency market means we should absolutely expect that such volatility is inherently part of the game, but even the price corrections feel a bit strange.
An argument for the rises
Anyone holding onto Bitcoin and Ethereum during the last few months has probably been overjoyed when they compared their net worth to even just a year ago. While I cannot speak to what has allowed for the steady rise of the two over that time period, I think the most recent jumps are probably connected with the increase in ICOs.
This is particularly true of Ethereum, though some ICOs also are accepting Bitcoin as the seed funds to invest. Both of these currencies are deflationary, their potential supply is capped and every day that passes means we are closer to that cap. It also means that any large sums of ETH or Bitcoin put into these projects are essentially held up outside of the graspable market. It does not technically reduce supply but it does place those funds in harder to reach places, which creates a sort of artificial scarcity.
It affects Ethereum more because of the nature of Smart Contracts that exist within that blockchain. Tokens are issued upon the execution of code within those contracts making it incredibly easy to do an ICO with Ethereum. Dogecoin’s Co-Founder, Jackson Palmer, does an excellent job of explaining this in a recent video he posted on YouTube.
Another possible reason for the rises is falling values of various fiats. With Brexit, Trump, and other wildcard situations going on in the world, markets and fiat values act just as strangely. Whenever the traditional fiat market seem to be in a bit of turmoil, maybe look to alternative investments, be it gold, silver, or Bitcoin, ETC, or Litecoin.
Possibilities for why it has had sharp falls
One of the biggest reasons that it may have dropped so much recently from its all time high maybe the fact that trade volumes were astronomical. An already congested network with rather steep fees was hit harder by some large exchanges being unable to cope with the transaction volume. We saw how Coinbase had to shut its -virtual- doors for a little because of this. Obviously, this left all of its users unable to buy or sell their Bitcoin, Ethereum, and Litecoin.
While this also could have created a greater demand for the coins -as individuals would have less access to purchasing coins, as a short term artificial scarcity- it also meant that traders who had funds in Coinbase may not have been able to sell their coins. When exchanges close, prices go crazy. This time it ended up hurting the overall prices of these two hot digital assets.
Check out Jackson Palmer’s Video about ICOs:
Disclaimer: This is not trading or investment advice, but rather an op/ed. Always do your own independent research
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