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The crash of 2018 is still burned into the memory of many new rich investors who saw their portfolio gains vanish before their eyes. How could such large amounts of money lose so much value in that short period of time?
Most think it was because something was wrong and that it was the final blow to crypto. The doomsday prediction. Yet, two and a half years later, the crypto markets came roaring back. Many left with distaste in their mouths while some stuck it out. However, it still remains a mystery as to why crypto goes on massive rallies followed by massive dumps.
The law of supply and demand is often not part of a speculative investor's education. They are only glued to price and that’s it. The more you understand supply and demand, the faster you’ll understand how prices are affected.
Bitcoin reached an all-time high of $19,857 in 2018, followed by a decline to around $3,092. Everyone wonders why something so valuable can drop so drastically? That’s easy: the demand wasn’t there to push the price higher. And if there is no demand and no supply, the bottom is wide open.
How can there be no supply? I’m sure if you’re reading this, you probably have a nice bag of crypto tucked away of which you haven’t sold any at all. If you and millions of investors aren’t selling, then who is providing the supply? And if hardly any investors are willing to pay for an overpriced asset, why should price stay there?
You see, everything is about supply and demand.
In the OTC markets in regards to stocks, you see how penny stocks can rapidly increase and decrease in price. This is because liquidity is often an issue. One major player can artificially inflate the prices, causing the price to skyrocket. However, there is no volume to support the price being at those levels. So what happens? No demand and no supply means a collapse of price.
Many crypto projects have "whales" -- entities who purposely inflate prices only to gain attention by being listed on the top gainers list and trending list. They can manipulate prices long enough to lure in the liquidity/volume. Once they look at the analytics of wallets, they can determine realistic profit potential.
Take a look at the following charts for DCIP and Bitcoin. They have both seen a massive run-up, but pay attention to the volume.
Bitcoin has more volume, but also eventually took a decline because not enough buyers came into the market.
Just because you see prices flying up doesn't mean that true volume is coming into the market. I can drop $250,000 on a crypto that has a supply of 300,000 coins and the price is $1.00. I just gobbled up most of the supply. That alone can cause a 10x or more gain, but not enough liquidity to realize profits.
Crypto has more long-term holders than active traders. This is one of the reasons for price moving widely through various price levels. It’s trying to find a healthy level of support and demand. Long-term holders aren’t active, so price is searching for adequate supply and demand.
Now with more institutions coming on board and there being some push for mass adoption, we are seeing healthier corrections that don’t last as long and where demand can be met with supply.
If supply is low and demand is there, price increases. Why? Price increases to encourage investors to sell in order to create supply. If the supply is low and the demand is high, how can people buy if there is no supply? In such cases, the algorithm moves price up to encourage selling.
The opposite is also true. If supply is too much and there is no demand, price drops. The drop is designed to get more people to buy up the excessive supply. Once a healthy number is met, we create support levels.
Shiba Inu went on a massive run recently. Those investors who are too heavy (holding massive amounts of the coin) won’t be able to sell them. Why not? Because if you have billions of dollars worth of a coin, who is going to buy those coins from you in the ridiculously high-priced target areas? If you’re selling, who is buying? This is why we want Sweet Zones (this will be covered for our VIP members in the next few days).
If you’re interested in learning more about our strategies and methods, consider joining our membership while slots are still available.
Happy coining! May the horse be with you.
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Written by: Eric White
Edited by: Shamya White