It's been a couple of weeks that the vertically rising crypto market saw a slump. The price of Bitcoin and other altcoins that seem unstoppable suddenly hit a roadblock pushing the BTC price from all-time highs of close to $63,000 to sub $33,000 levels.
Many called it a tweet or social media-driven fall, while other Bitcoin minimalists called it a "weak" asset, and it had no future. And for the retail and small investors that caught the train late were trapped under the fall, triggering some concerns within regulatory corridors again with calls for investors' protection against these highly volatile assets.
While none can deny the steep fall in cryptocurrencies has created a dent in many traders and investor's capitals, and the vicious volatility of crypto assets is something that has not been seen in other asset classes (primarily due to regulatory interventions), it does not classify them as a scam or something harmful to the investor community. In fact, these corrections have proven healthy for the cryptocurrency market and the blockchain industry as a whole.
Below are the few reasons that prove to be beneficial for the industry and crypto markets when the crypto markets fall
Removes malicious people out of the system
When the prices of crypto rise, all the attention is towards attracting new investors and traders to invest in the projects. Also, the new investors try to jump the bandwagon in haste to make quick money from the market pumps in FOMO (fear of missing out).
This allows a lot of evil characters and fly-by-night operators to move out. The initial coin offerings (ICO) craze of 2017 gave us many companies and projects where investors were duped in scams under false claims. These projects took advantage of massive price pumps and duped customers with false return claims, ultimately fleeing away with their money.
Deflates the overvalued bubble
Crypto prices usually spike vertically, which is mainly due to the overflowing liquidity pumped in by traders and investors to make quick money. This creates a bubble-like situation where tokens prices skyrocket day after day, making repetitive ATH (All-Time High).
Since the prices are not regulated and function purely on demand and supply, the spike in prices is usually massive, taking in all the available liquidity usually provided by newer traders and investors who are here for quick gains. But as the first cracks on the downside appear, these new traders and investors who invest because of FOMO start dumping their coins, leading to a massive fall in price, ultimately settling at a price with a reasonable valuation.
Attention moves away from Prices towards Fundamentals
When the crypto markets fall, the unnecessary attention these small token and coins prices get is far less. All the focus of stakeholders, including founders, investors, and others, moves towards something meaningful- development and innovation- something that this nascent industry thrives on.
When the prices are soaring, the stakeholders tend to get distracted by the price movement of the tokens as the price becomes the ultimate judge of the project's creditworthiness and success. But when all the air around the price of cryptocurrencies deflates, founders, investors, and all the other stakeholders start focusing on the true fundamentals of the project and take decisions that aid the fundamentals of the project that supports the price.
Recruitment spikes as focus shifts to BUIDL (crypto slang for BUILD)
As the focus of investors moves towards fundamentals, credible projects start recruiting great talent as all the focus is on building projects and products that could be bought to use, and their tokens and coins gain value organically and not by price pumps. Investor who love to invest at these times cause the valuations are reasonable, and there can see their monies being used in actual building the project and products rather than in activities that keep their coins in the focus of investors who are ready to grab any coin when the markets are swinging upwards.
Separates excellent projects from the heap
As of today, there are over 10000 crypto coins. While all of them have a purpose, some projects happen to be fundamentally weaker than others which may be due to various reasons. Not that these projects are scams or malicious, each project has its growth stage, which makes them weaker or more potent compared to others. When the crypto markets correct, the fundamentally strong projects usually face a lesser fall than the weaker ones.
This allows the investors and traders to differentiate between superior projects fundamentally and helps them pick up the right coins, which otherwise, in rising markets, are challenging to find. It also becomes difficult to differentiate the actual news from the rumors as everything is rising, making investors commit errors of judgment.
Working with Regulators Becomes Easier
Whoever has been in crypto markets or has followed them for a while knows that regulatory concerns are the biggest threat to the industry. And when the prices of cryptocurrencies are rising spirally upwards, regulators are usually jittery and are exceptionally watchful and busy taking steps to protect the small investors against the actions of participants who can manipulate prices.
This leaves very little room for them to sit down, discuss and create frameworks and policies that provide positive impetus to the crypto industry. But when crypto markets fall and reach their support levels, the movement is usually sideways or range-bound, creating an environment of calmness giving enough room for industry participants to work with the regulators towards the betterment of industry collaboratively.
So while many may dread the correction in the crypto markets, these price drawdowns are actually positive for the betterment of the industry, at least till it's in the early days of growth. It also helps in healthy streamlining, making it free of turbulence giving cryptocurrencies a firm and stable ground for growth.
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