What could Stop Cryptocurrency Momentum?

In the last decade, millions of crypto enthusiasts, investors, and speculators have sold and bought cryptocurrency, hoping that it would be both a strong investment and the currency of the future. The cryptocurrency market is now booming.

Bitcoin, the most well-known crypto name, has risen from a low point around $5,000 in March 2020 to a value of over $51,000 at the time this article was written. Rival currencies such as Ethereum and Litecoin have emerged to be realistic rivals – meme currencies like Dogecoin still exist.

A growing number of merchants accept cryptocurrency as payment. Nearly one-third of all U.S. small businesses accept cryptocurrency as payment. This number is steadily growing. According to crypto optimists, this is the natural momentum that crypto will become mainstream.

The crypto movement is moving forward with a lot of momentum. What, if any, can stop this momentum?

Watching the Signals

What does “momentum” really mean? And what can be done to bring it to an end?

Investors will often say that price is the most important variable. An asset’s price is usually a sign of trading volume and consumer confidence. The higher the asset’s price, the greater the trust people have in it.

Bitcoin and other popular coins have seen a steady rise in prices over the past few years. If they start to fall (without a rapid recovery), it could be a sign that crypto faith is waning.

You can also examine more complex signals such as when an asset is too expensive. Market attitudes towards an asset or its value are not always directly related to price fluctuations.

We can see that Bitcoin’s price has been rising rapidly, but it is “overbought” so we can expect that its true momentum will be slower than what we perceive. The price will soon fall to a more reasonable level.

It’s possible that the sudden decrease in price is not a sign of lost momentum or stagnation.

It’s difficult to define the upper and lowest bounds of crypto’s growth trajectory. Even with all this in mind, even the most loyal investors could be affected by disruptive developments and events that might shake up crypto’s growth trajectory.

New Regulations or Laws

Public faith in crypto could be affected by new regulations and laws. The majority of developed countries are neutral on crypto. Some have even created their own cryptocurrency (more later). Some countries have banned crypto trading.

Let’s say that crypto trading is being regulated by significantly developed countries. It could lead to a domino effect that eventually threatens crypto’s utility and decentralization.

A Major Security Issue

Crypto has been described as being more secure than traditional money exchanges. Anyone who is familiar with blockchain technology’s decentralized ledger knows that security flaws are rare.

However, a legitimate security risk (such as a visible 51 percent attack) could undermine consumer trust in crypto as a secure asset.

An attack or security threat does not have to be especially threatening or destructive; it only needs to make investors reconsider their views.

Declining Keystones

The current crypto world revolves around Bitcoin and, to a lesser degree, Ethereum and Litecoin. These are the mainstays of the crypto community. However, there are many promising young candidates.

A significant decline in any of the “keystone” currencies could have a major ripple effect on the entire crypto market. This could slow down the market’s growth momentum over the past few years.

Overcrowding

Overcrowding and competition in the crypto market may also be a problem. There are thousands of new currencies competing for market share. This makes it difficult for individual currencies to be distinguished and confuses newcomers.

• ICOs – Every year, there are thousands of new cryptocurrency projects. Although most of these projects fail within a few months, the market for cryptocurrency is continually expanding.
• National digital currencies – Several countries, such as Venezuela, Ecuador, China, and China have created their own government-backed cryptocurrency. Although this defeats the purpose and is not legal, it could legitimize the threat to the decentralized currencies that we have come to love.

A Wider Economic Collapse

If the economy collapses, crypto growth could stop. People may withdraw from crypto markets if they begin to worry about their economic futures. They may also return to more familiar financial systems, which can provide them with the security and comfort they seek.

• Federal reserve action – To avoid an economic recession, the Federal Reserve has maintained low-interest rates for many years. The Federal Reserve has recently announced that it will increase rates gradually over time. Rate increases that are too abrupt or extreme could have an adverse effect on the wider market.
• A real estate market/stock market crash – Although crypto could theoretically operate independently from other financial markets, it is possible for crypto to be affected by a major crash in any other financial market. Crypto’s momentum may come crashing down if the stock market crashes or another housing bubble bursts, as in 2008.
• Geopolitical events – A number of geopolitical events could have a significant impact on the financial markets, including the onset of a new major conflict or other economic turmoil. Although they are often unpredictable, these events could have a significant impact on crypto’s future.

What to Do If You Anticipate a Crash

What if these are the signs of a crash and you start to suspect it?

If your prediction is correct, there are some actions you can take to help.

• Diversify your holdings – Portfolio diversification is a great strategy for all investors, even if your holdings don’t include crypto. This is even more important if you hold risky assets.
• Chart regular withdrawals – To maximize your profits and minimize your losses, withdraw your investments slowly in small amounts.
• Influence what you can – Believe in cryptocurrency’s future. Promote the benefits of cryptocurrency and oppose any new regulations that might threaten it.

Although cryptocurrency is becoming more mainstream, it is still a new financial tool. We don’t know much about crypto’s future role in the world. There are many unknown variables that will affect its development.

It is important to continue to treat crypto as a volatile, risky asset even though it appears that crypto’s momentum may continue to accelerate well into the future.