Four factors under which cryptocurrency would crash

Four factors, namely poor regulation in significant crypto markets, a crash of crypto exchanges, continued use of credit cards to buy crypto. And also problems with Tether cryptocurrency would interplay to cause a possible cryptocurrency crash.

This is according to Julian Hosp the co-founder of TenX, a company that provides debit cards that people can use to spend their cryptocurrencies.

The company has been analyzing risks in preparation for the future of cryptocurrencies. The analysis was to find circumstances under which crypto would crash because just a handful of people raised concerns about it being a bubble. Hosp came up with those reasons after talking to some of the brightest and experienced people in the crypto ecosystem.

Banning of exchanges in many countries around the world through unfavorable regulation could, for instance, is more unlikely to affect cryptocurrencies that much borrowing from China’s experiences. Companies in the markets where cryptocurrencies are banning merely move to other favorable markets and cryptocurrencies continue to soar.

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And although banning in Europe and U.S. could have significant effects on cryptocurrency markets, it is unlikely that it was going to happen. Prohibition of cryptocurrencies in these markets scores a 10 percent chance in 2018. This would cause a decline of 50 percent in total cryptocurrencies’ market capitalization according to Hosp.

For the case of crypto exchanges affecting the crash, 70 percent of the trading volume was holding in one exchange Mt. Gox in 2014. However, trading is more distributed among trades today. Rarely does one exchange hold more than 10 percent.

However, crypto exchanges such as Coinbase and GDAX account which play a significant role in bringing new fiat into the ecosystem. Cessation of fresh money by a crash of these transactions would affect growth significantly. Thus, more than would hack according to Hosp. A collision of exchanges such as Binance which plays a significant role in adding new users would affect cryptocurrencies.

The chances for a major exchange to have serious issues are 25 percent in 2018. This would cause a 10 to 15 percent drop off in crypto market capitalization according to Hosp.

Also Read: Online criminals dropping Bitcoin for other cryptocurrencies

About 3 to 4 percent of cryptocurrency purchases made on credit is not paying back by the buyer, according to a  report cited by Hosp. Unrealized expectations that the market would go higher can cause a problem. This would affect new entrants, for instance, who would be unaware. The probability for this to happen is just 20 to 25 percent. Thus, causing about 5 to 10 percent drop in market capitalization according to Hosp.

Tether, which is a cryptocurrency backed by an equivalent value of a dollar. It has a market cap of $1.6 billion which means the actual amount that was put into the cryptocurrency. Each Tether issued is backed by an equivalent $1 of reserves. This is not the case with all other cryptocurrencies. For all other cryptocurrencies, even when the market capitalization is high, much lesser amount will have moving into the cryptocurrency. This is because market capitalization is calculates by multiplying current price by the number of tokens supplied.

Some complaints already surfaced that Tether does not have an equivalent amount of dollar reserves backing all of their assets as claimed. This, according to Hosp, would cause a massive stir in the crypto market. This would happen when people find that the Tether’s stated value is untrue. Since many exchanges and other cryptocurrencies are connecting to Tether.

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Sara K

Sara is steadily working on cryptocurrency evaluations, news, and fluctuations in digital currency prices. She is guest author associated with many cryptocurrencies admin and contributes as an active guide to readers about recent updates on virtual currencies.

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