Nobody will mention this, but these crypto crashes are highly correlated.
Although many claim that Bitcoin is the driving force behind crypto (it definitely started it all), I beg to differ.
I don't think that Bitcoin is the driving force behind any of these alt coins. They have different purpose and different public.
Moreover, the altcoin investors are not robots (at least they shouldn't be). They are humans. The fact that there is 0 lag between bitcoin crash and altcoin crash suggests that real investors have nothing to do with it.
The only ones who could coordinate these crashes are either:
1. Big institutions holding multiple coins from the very bottom and moving them at the same time (highly risky and therefore unlikely)
or
2. Crypto exchanges (very likely)
Crypto exchanges have all the data about leveraged positions, buy orders, sell orders, and the main part (which at the moment defeats the whole purpose of crypto), they have the monopoly of determining the price.
Since exchanges have been caught very often not being liquid enough in the currency that they are selling/buying, they are directly impacting the effective supply of the currency.
Since nobody checks their balance sheets, at any given time they can sell or buy more crypto than what is available.
A coin market cap is determined by the supply and demand. But nobody mentions that supply is not total coins minted. Supply is the amount of coins available at the moment.
Let's say that Cardano has a market cap of $50B and a price of $1.50.
This would suggest that if you were to sell all existing cardano, you would get $50B in return. But this simply isn't true. We know that if you started selling significant amounts of the coin, the price as you sell would fall, and you would sell every next portion of your coins for a lower and lower price. And in the end, you could get 20%-30% of the initial market cap.
This means that the real market cap is determined by the current supply (as a minimum price where someone is willing to sell) and demand (as a maximum price at which someone is willing to buy) AND THE MOST IMPORTANT PART the size of demand (how much coins are you willing to buy at that price). Moreover, the price as you buy will increase, which will make you less likely to buy more.
Of course, these are the problems with efficient market hypothesis which we know isn't true. But the extent to which it isn't true for crypto is significantly larger than for stocks.
Reason 1. Crypto doesn't have underlying material value.
Reason 2. Crypto doesn't pay dividend. You can sometimes afford an expensive stock if it gives you cashflow that doesn't depend on current stock price, but the underlying fundamentals. You cannot afford an expensive crypto, even if you stake it, because the % or dividend is given in the currency of the coin. Which means it is still affected by the price of the coin, and not the underlaying fundamentals.
Reason 3. Crypto with a good project doesn't require market capitalization. Therefore a crypto system is not affected by the price, and it can operate correctly at any price. The projects can still work and be good at market cap of 1M, 1B, 1T or whatever. It can be used and doesn't have to be used as a currency. This doesn't mean that the price will affect it's efficacy.
Reason 4. Crypto developers cannot gain capital if the price increases (unless they sell a lot of coin at a specified price, which would affect the market). A company CEO can use his stocks as a collateral to get credit, and therefore he doesn't have to sell his part in the company to capitalize and further improve the fundamentals.
Reason 5. Exchanges. As long as crypto is traded on exchanges, there will be no free market. The market will also move too quickly to be efficient.
There are many things that need to be fixed. This doesn't mean that the crypto is the problem, but we should keep in mind everything that affects the market.
Although many claim that Bitcoin is the driving force behind crypto (it definitely started it all), I beg to differ.
I don't think that Bitcoin is the driving force behind any of these alt coins. They have different purpose and different public.
Moreover, the altcoin investors are not robots (at least they shouldn't be). They are humans. The fact that there is 0 lag between bitcoin crash and altcoin crash suggests that real investors have nothing to do with it.
The only ones who could coordinate these crashes are either:
1. Big institutions holding multiple coins from the very bottom and moving them at the same time (highly risky and therefore unlikely)
or
2. Crypto exchanges (very likely)
Crypto exchanges have all the data about leveraged positions, buy orders, sell orders, and the main part (which at the moment defeats the whole purpose of crypto), they have the monopoly of determining the price.
Since exchanges have been caught very often not being liquid enough in the currency that they are selling/buying, they are directly impacting the effective supply of the currency.
Since nobody checks their balance sheets, at any given time they can sell or buy more crypto than what is available.
A coin market cap is determined by the supply and demand. But nobody mentions that supply is not total coins minted. Supply is the amount of coins available at the moment.
Let's say that Cardano has a market cap of $50B and a price of $1.50.
This would suggest that if you were to sell all existing cardano, you would get $50B in return. But this simply isn't true. We know that if you started selling significant amounts of the coin, the price as you sell would fall, and you would sell every next portion of your coins for a lower and lower price. And in the end, you could get 20%-30% of the initial market cap.
This means that the real market cap is determined by the current supply (as a minimum price where someone is willing to sell) and demand (as a maximum price at which someone is willing to buy) AND THE MOST IMPORTANT PART the size of demand (how much coins are you willing to buy at that price). Moreover, the price as you buy will increase, which will make you less likely to buy more.
Of course, these are the problems with efficient market hypothesis which we know isn't true. But the extent to which it isn't true for crypto is significantly larger than for stocks.
Reason 1. Crypto doesn't have underlying material value.
Reason 2. Crypto doesn't pay dividend. You can sometimes afford an expensive stock if it gives you cashflow that doesn't depend on current stock price, but the underlying fundamentals. You cannot afford an expensive crypto, even if you stake it, because the % or dividend is given in the currency of the coin. Which means it is still affected by the price of the coin, and not the underlaying fundamentals.
Reason 3. Crypto with a good project doesn't require market capitalization. Therefore a crypto system is not affected by the price, and it can operate correctly at any price. The projects can still work and be good at market cap of 1M, 1B, 1T or whatever. It can be used and doesn't have to be used as a currency. This doesn't mean that the price will affect it's efficacy.
Reason 4. Crypto developers cannot gain capital if the price increases (unless they sell a lot of coin at a specified price, which would affect the market). A company CEO can use his stocks as a collateral to get credit, and therefore he doesn't have to sell his part in the company to capitalize and further improve the fundamentals.
Reason 5. Exchanges. As long as crypto is traded on exchanges, there will be no free market. The market will also move too quickly to be efficient.
There are many things that need to be fixed. This doesn't mean that the crypto is the problem, but we should keep in mind everything that affects the market.