Steemit Crypto Academy Contest / S1W4 – Reviewing the Instability of the Crypto Market by @okwy
Hello everyone, I'm happy to take part again in the 4th week of the crypto academy contest for Steemit Engagement Challenge. This contest enables us to share our ideas on the instability in the crypto market. I believe this contest was inspired by the market crash that just happened recently in the crypto market. Let's get down to it.
Most of the cryptocurrency market is currently experiencing a sharp decline, especially in recent days. What do you think of this drop? State its causes and how long do you think it will continue in this downtrend?
What I think of the Drop
One thing we have to understand in the crypto market is that situations like this will occur in the market. As cryptocurrency traders, it is assumed that we understood the volatility of the market and how risky is it during a financial crisis. The market moves in cycles which can be either bullish or bearish cycles. Since this year, we have been in a bear market and the drop clearly shows that more selling pressures are entering the market.
Also, the crypto market is highly volatile and is mostly moved by sentiments and fear of traders. Yes, it is through that all the financial markets experienced this drop, but the crypto market suffered it most due to the volatility. For me, this is a normal market cycle and we will still experience the bull run.
What Causes the Drop
A lot of factors affect the crypto market. The market is mostly moved by demand and supply. We tend to see prices drop when supply exceeds demand and vice versa. In this section, I will highlight some of the causes of this drop.
Fear: We all know the problem that Luna network is experiencing right. Cryptocurrency is trying to gain adoption and this kind of event isn't good for the crypto market. Situations like this put fear into investors and question their trust in the future of cryptocurrencies. This, in turn, creates panic which leads to a major sell-off in the market.
Crypto Regulation: Cryptocurrency has been fighting the SEC and FED who are always suing and monitoring the cryptocurrency market and companies. Most of their investigations reveal some suspicious activities which trigger fears in the mind of investors to sell their assets.
Another reason for the drop is the newly released interest rate by the FEDs. The entire financial market suffered from this including stock, forex, indices and commodity markets. These markets have attained stability and that is why the drop wasn't too much on it. On the other hand, the crypto market is unstable and information like this tends to create unrest and increased volatility in the market.
From the technical perspective which I don't like to go into right now, the overall trend of the market is still bearish. Though there have been some retracements from the drop. Hopefully, if more buying pressure enters the market, we will be able to see greens again.
In concluding this section, I will be by saying that situations like this are bound to happen. As traders, we should always stay on guard to expect anything from the crypto market as it is still trying to be a stable market.
Why doesn't this drop in the price of a few coins decrease their trading volume (eg: Bitcoin)? How will they deal with this market instability?
Volumes show the amount of money circulating in the market from both buyers and sellers on a given asset. To my understanding, during a drop volume isn't directly affected as trading activities will still be going on in the market. Also, I think the trading volume of currencies like BTC, USDT, and ETH will be stable as more investors will move their assets to them for security.
Also, the drop allows investors to buy at a low price while others are panic selling. This in turn maintains the trading of assets like BTC as they are seen to already have great potential.
How to Deal with the Instability
Instability is one thing we have to deal with always in the crypto market. Though we have stablecoins that can serve as a haven during a price drop like this. The scandal in UST has also shown that stablecoins are not truly stable. Investing in the crypto market is a risky one which we should understand before making any investment and also with spare capital. Long term investment can also be a good way to deal with the instability.
What is the relationship between the current instability and the downfall of the Terra ecosystem and its Luna currency? Do you think its price will bounce back? If so, tell us how and when?
The current instability greatly affects the Terra ecosystem. Though the problem started when the US SEC audited the Terra ecosystem and noticed an imbalance in the claimed reserve for UST. Normally stablecoins are backed with USD which means that for every UST minted, an equivalent USD is backed in the reserve.
The Luna coin is a non-stable coin of the Terra ecosystem which helps to maintain the stability of the UST. The instability in the crypto market affected the price of Luna just as every other asset. This affected the pegging of UST as the price of Luna drops heavily. This situation created panic and fear in investors and triggered a major sell off in Luna.
Will the Price Bounce Back
The future of Luna depends on the community and team. Luna has a total circulating supply of 6.5 trillion trading below a penny. This number is massive and won't be revived anytime soon. The possible solution to this is to reduce the excess supply of Luna and peg back UST. This can be done by buying back Luna and burning the excess supply. From the news, the team is considering creating another project Luna Classic and this will be airdropped to users holding Luna before the de-pegging. Most people consider the project dead, but I feel a resolution will be made as some important crypto influencers are involved in the situation.
Our Steem ecosystem, like most currencies, has been affected by this market downturn, has this caused you as a user some stress? Or are you still confident in this project? Give your opinion, specifying the arguments that support your review
Just like every other cryptocurrency ecosystem suffers this drop, the Steemit ecosystem is not an exception. The Steem price recorded its lowest low since January 2021 below $0.20. This greatly affected the reward system of the ecosystem and content creators were receiving low payouts. The debt ratio of the reward system went above 9% which eliminated SBD in the post payout. To be honest, the rewards serve as motivation to users on the platform and this price drop caused a lot of stress to users.
Though this is not the first time such a scenario is happening. I'm confident and believe in the project to boom again. Steemit is a great ecosystem which has great potential in the future. The market crash and drop haven't questioned my confidence in the project.
This post is only my own opinion about the crypto market. I hope you enjoy reading through it.
Cc: @okwy
Nice entry dear, crypto is very volatile, that's why it's best advised to always invest what one can afford to lose,we hope to see recovery market sooner.
Hopefully, the market will recover in no time. We just have to be careful with our investments right now.
Thank you for publishing an article in the Crypto Academy community today. We have accessed your article and we present the result of the assessment below
Comments/Recommendation
You need to deepen your explanations. Thank you for participating in this contest.
Total|7.5/10