WHAT EXPLAINS A 40-BILLION DROP IN MARKET CAP?

Facts and news

When there is a sudden change in prices or in the market cap, we always try to find rational, solid explanations. It’s not easy. But it’s easy to get confused by headlines because some of them, actually most of them, are not about what’s really going on.

Total market cap is down by 40 billion. That’s a fact. If you are looking at the headlines for possible explanations whenever something significant is happening in the crypto market, they will often lead you to false conclusions.

We will look at those headlines, too, in order to make it clear, as much as possible, why the news behind them have no power whatsoever that would enable them to influence the crypto market so significantly.

Let’s jump right onto what several sources identify as the actual cause of the 40-billion dollar drop in market cap. It’s not something big, so you won’t find it in the headlines. The real issue why prices have dropped so much is most probably that a few players, major investors, want to push the price down. Would that be so easy? When the market capitalization is high, like it was earlier, it is much harder to carry out significant price changing actions. Most attempts like that would fail to cause any relevant changes in the overall picture. However, at the moment the market is very low-liquidity, which means that even if we are talking about only a few major crypto interest groups, their decision to try to push prices down may result in prices dropping very quickly, they are really capable of driving down coin valuations. So, there is no breaking news, no earth-shattering development in the crypto space. What has been happening in the past few days can happen in a low-liquidity market, and it did.

So, let’s go back to look at the headlines that claim to tell you what’s going on and why. The headlines definitely make you feel negative now. That’s not surprising. There are a few major headlines that analysts try to use as explanation behind the drop in market cap. However, it’s important to underline in advance that none of those headlines have any proven direct influence on what’s happening in the crypto market. The first news that has appeared in various news websites and crypto blogs is about a South Korean exchange, Coinrail. It’s important to know that Coinrail processes 1 to 3 million dollars a day, so it’s definitely not a big player in the crypto market. They had a recent hack but that did not result in any loss regarding major coins. The other news is about a supposed investigation in crypto exchanges, like Coinbase and a few others, concerning possible price manipulation and insider trading.

Why do these have nothing to do with a 40-billion dollar correction?

First of all, a Korean exchange hack that results in a few tens of millions is simply insignificant when you look at the overall picture. Not to mention the fact that an exchange with a daily traffic of 1 to 3 million dollars can hardly be seen under a magnifier.

The other news about a possible investigation cannot justify this market cap correction, simply because this news has been around for some time. There have been several court cases against Coinbase and a lot of other exchanges, as well, for various reasons, continuously. There’s nothing new about that. It’s not something that would affect the general market atmosphere that much and so suddenly.

But news like these appears each day. It’s hard to say who’s right, what really explains the momentary development of the crypto market can and crypto-currency prices. Most analysts usually conclude by saying that after all the crypto market is still a very young market and therefore we should not be surprised at its extraordinary volatility.

Zsolt Balló