Crypto Currently is our three-times-a-week update on digital currencies in Australia and overseas.
The worst could be over. After weeks of tanking, the price of some of the major Cryptocurrencies finally showed signs of life over the weekend and started to climb. After getting as low as $7,639 earlier last week—a price hit in mid-November last year—Bitcoin pushed as high as $11,518 before falling back to $11,039. Ripple also had a good run and got above the psychologically important $1 mark to sit at $1.35. Ethereum is now almost exactly where it was on Friday after making a Saturday comeback to $1,067.
Given that cryptocurrencies generally move together, Bitcoin’s return to a more “normal” price may signal that the craziness of December has finally died down. In fact, if you look at a graph, the really sharp price rises Bitcoin experienced during the heights of December’s Cryptomania, you’ll see that it all started around the $7500 price. The end of extreme movements could signal that Cryptocurrency is starting to act like more normal market.
And when I say a “normal’ market, what I’m referring to is the way in which prices affect demand. Because when the price of something rises, people usually consume less of it. For example, the Australian Government continually raises the price of cigarettes because they want people to stop smoking. This has the effect of reducing demand and—all things being equal—pushes the price back towards where it started. In this way markets can be self-stabilizing, which is a good thing.
But when irrational euphoria and herd-like behaviour takes control, this process breaks down, as we saw with Bitcoin a few months back. As the price continued to rise, it began to attract mainstream attention. People saw the rising prices and concluded that Bitcoin must be a really good investment and rushed to buy it, causing the price to balloon even further. And the more the price rose, the more the media breathlessly reported on the rise of Cryptocurrencies, leading to a self-fulfilling cycle of skyrocketing prices and manic herds of people who were didn’t want to miss out.
It’s possible that with prices stabilising over the past week, we may have seen the end of irrationality in Crypto markets and a return to “normality.” But then again, this is all new.
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