EDITOR'S NOTE
The cryptocurrency market appeared to stabilize on Tuesday, giving investors and traders a chance to catch their breath after a wild two-week stretch.
Why bitcoin fell, however, is becoming more clear. Crypto experts and market analysts told CNBC that there is significant leverage within the digital currency markets around the world, allowing traders to buy up large amounts of bitcoin for little money down.
That leverage, however, can cause serious problems when the market dips, and traders may have to exit their positions to avoid losing even more money. That can create significant sell-offs, like bitcoin saw earlier this month.
“You get this crowd factor — everybody’s liquidation price tends to be somewhat near everyone else’s — when you hit that, all of these automatic sell orders come in, and the price just cascades down,” Brian Kelly, CEO of BKCM, told CNBC.
Where the cryptocurrency market goes from here remains to be seen. The space has seen increased institutional adoption over the past year, which could help limit volatility going forward.
However, a previous bitcoin price crash in late 2017 and early 2018 led to a "crypto winter," and that could happen again, according to Mizuho. If it does, it could mean the price of cryptocurrencies remain stuck in neutral for a while and that user activity and revenue for exchange companies like Coinbase take a big hit.
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