Steemit Crypto Academy Contest / S1W4 – Reviewing the Instability of the Crypto Market by @olabillions

Most of the cryptocurrency market is currently experiencing a sharp decline, especially in recent days. What do you think of this drop? State its causes and how long do you think it will continue in this downtrend?**

One of the causes of the sharp fall in cryptocurrency is due to the fall in the price of Bitcoin. As we all know, bitcoin is the leader in the cryptocurrency market because it is the first cryptocurrency ever created and it is the first cryptocurrency with a brand that signifies digital money.

Since bitcoin has been created, other cryptocurrencies have been created too. This makes cryptocurrency have a wide market. but in all these happenings, Bitcoin is still the leader among other cryptocurrencies. So people look up to Bitcoin to see what's happening in the markets. If the price of Bitcoin goes high, then it tells them that the crypto market is good and so other cryptocurrency values start increasing. Likewise, if the price of bitcoin goes low, it tells them that the crypto market is bad and so other cryptocurrency values start decreasing.

So recently, the price of Bitcoin has seen a marked decline in its price, this made people start looking at the crypto market in general as 'bad' and decided to sell off their holdings.

It is also of note that this is not the first time that the crypto market has gone through this phase. Something of this nature happened last year when Tesla founder, Elon Musk said on his Twitter profile that he won't be accepting bitcoin because of its environmental impact. This made bitcoin which had just recently reached an all-time high of > $60k, start to experience a decline. Also during this period, there was an announcement regarding regulations of cryptocurrency in China, this further brought about uncertainty in the market.

In my humble opinion, the price of Bitcoin which is the leader in the cryptocurrency world had a massive drop to just below $25k, and the cryptocurrency market followed suit.

Causes of the Downtrend

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The way I have been able to see it, the causes of the current drop can be categorized into three points.

Fear, Uncertainty, and Doubt - This is the first point in the category. It is called FUD. Early this year the U.S congress passed a bill that was targeted at cryptocurrency exchanges. This event caused a lot of panic among investors and this caused the market to have a negative effect.

Attack on a Cryptocurrency - As recently as the second week of May, there was an attack on a cryptocurrency called TerraLuna. This attack left the cryptocurrency in shambles, worst still it left the cryptocurrency world in shock. After the attack, there was massive disposal of the cryptocurrency by its investors. The TerraLuna ecosystem had a relationship with Bitcoin as it had enough Bitcoin in its reserves. During the attack, a lot of Bitcoins were sold, and this affected the price of Bitcoin, which in turn made the crypto markets have a bad taste.

This is the major influence on the overall decline in the cryptocurrency market.

Fear & Greed - Some months ago, judging from the Fear and Greed indicator, the market was in its greedy phase. Precisely on 28th March, the market was at the peak of the greedy phase with an index point of 60. At this point, it is suggested that a lot of traders would start taking some of their profits off the market. But doing this usually leads to the fearful phase where the market begins to get fearful about the sudden sale of assets which in turn leads to the decline in the value of the cryptocurrency market. Right now, the market is in its fearful phase. However, due to the aforementioned points above, the fearful phase has lasted a bit longer and has gone lower than the normal index of 20.

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The Time the Downtrend will Last

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I think this downtrend will continue for up to a month or two max. Because as we have tried to see the causes of the downtrend, it is no more news that the TerraLuna Saga has brought a decline to the crypto market. So at this point, it is left for the market to 'heal' from this experience knowing what had transpired, and begin to have a positive outlook.

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Also, using the Fear & Greed index, we can see that all the times the market was in the fearful phase, the lowest index point reached during this period is 20 after which the index begins to experience an increase. But this recent time the index didn't go up, rather it fell to the 10 index range. This fall I believe has something to do with the TerraLuna saga.

So I'm seeing a situation where the market heals from the TerraLuna saga and the fear & greed index starts to rise again indicating a healthy feeling in the crypto market.

We should note that using the Fear & Greed Index when the crypto market is at the greedy phase, it signals a time to sell assets, likewise, when it is at the fearful phase, it is a time to buy assets. Except are some unusual instances like the TerraLuna case. So we should be expecting a rise in the crypto market within a month or two

Why doesn't this drop in the price of a few coins decrease their trading volume (eg: Bitcoin)? How will they deal with this market instability?

The trading volume shows the number of buyers and sellers of a cryptocurrency at any given time. These numbers then show the amount that is entering in or out of a cryptocurrency. Even during the decline, the trading volume did not decrease because the market was simply engaging in trading activities.

For instance, even though the price of Bitcoin experienced a decline, to a lot of traders it was just another market volatility that they can capitalize on. This is especially true for technical analysts. They sell the token when they feel it is the right time to sell, and then go back to buy when they feel it is the right time to buy. This activity contributes to the trading volume.

Another thing that can be considered is the influx of new long-term investors who have been waiting for the price to reach a favorable level before buying the asset and holding off for the long term.

Relationship Between the Current Instability and the Downfall of the Terra Ecosystem and its Luna currency?

The Terra cryptocurrency has two main coins in its ecosystem called LUNA and UST. One is a volatile coin and the other is a stable coin. They have a mint and burn mechanism that helps to run and maintain the cryptocurrency which is done algorithmically.

The UST is tied to the value of the U.S Dollar at a ratio of 1:1 and uses a mint and burn mechanism to operate. When a user wants to obtain UST, i.e, minting UST, LUNA coins have to be burnt at the value desired. This mint and burn mechanism is used to maintain the value of UST at $1.

So during the attack on the TerraLuna ecosystem (a wormhole attack on UST), there was a dump of the UST coin which saw the value of UST decrease. This decrease began to affect the ecosystem negatively as it began to cripple the mint and burn process.

For the ecosystem to try to revive the dump situation they had to mint more LUNA coins, this made the supply of LUNA coins to be exceedingly high and made a lot of investors start selling the LUNA coins.

Do you think its price will bounce back? If so, tell us how and when?

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As it stands I don't think the Terra ecosystem would bounce because of the already bad reputation that the Terra ecosystem has already gotten due to this event. During this time a lot of investors lost so much money and so much trust in the cryptocurrency. Some even lost their lives.

Again its algorithmic mode of operation which is the driver for its mint and burn process has been hacked. This makes it difficult for future users to trust such an underlining mechanism.

Other stable coins like USDT, and USDC, make use of U.S Dollars that are in the bank, which makes them more stable and secured because they have a physical asset that they are directly attached to.

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Looking at the LUNA coins, they already have as much as 6 trillion worth of coins circulating in the market. This logically means that for the price of LUNA to reach $1 the market cap of the LUNA cryptocurrency has to be as high as $6 trillion, which would be way more than the entire cryptocurrency market. The best is for them to burn some of the existing LUNA coins in the market. That means for this to also take place they have to get coins from the current holders.

Our Steem ecosystem, like most currencies, has been affected by this market downturn, has this caused you as a user some stress? Or are you still confident in this project? Give your opinion, specifying the arguments that support your review

The decline in the prices of the cryptocurrency market was so great that all cryptocurrencies were affected including STEEM. Before the sudden decline, STEEM tokens were trading at a price range of $0.28 - 0.31, but at the heat of the decline, it fell to about $0.16.

Honestly, I felt the decline, that's because the upvote value decreased and the post payout also decreased. Then due to the club5050 rule, the amount to withdraw was 50 percent which made everything not make sense at the time. But I was able to hang on because I have some things too that I also do to get money.

I'm very confident in the project because Steemit is a different cryptocurrency/blockchain platform. It is a social platform that allows its users to create authentic posts and other users can engage with it and reward the post based on the Proof-of-Brain concept.

It is unlike most other cryptocurrencies that are financial-based. These cryptocurrencies attract the attention of the world including hackers. Just as we have seen with the Terra ecosystem, the hackers have succeeded. You need a robust mechanism to prevent hackers from attacks.

Steemit on the other hand isn't a platform that is pleasing to the eyes, so rarely do we have any issues with hacks. Although some individuals have tried and succeeded in hacking individual STEEM tokens it is at a small level.

Finally, the club5050 status is a welcome development because it makes users hold at least 50 percent of their tokens by powering them up. In this way, users would hold the STEEM tokens in the form of SP and can HODL. This makes the STEEM value rise in the long run.