Reasons for the decline of digital currencies and not the rise
Cryptocurrency markets have been experiencing sharp fluctuations, especially in recent times, as investors have noticed a steady decline in prices before any attempt to rise. This behavior may be attributed to multiple factors, in which the decisions of major investors and market mechanisms overlap. Here we will discuss the most prominent reasons for this decline, and how they affect the market.
1. The impact of futures contracts and the use of financial leverage
Many investors turn to futures instead of the spot market to make higher profits using leverage. This leverage magnifies gains, but it also increases risks. When the market moves against expectations, financial platforms liquidate open positions to protect capital, which leads to sharp declines.
2. Filter out small investors before going up
Large-scale liquidations of contract holders are often seen before any major rally. It is believed that large players, or “whales,” deliberately push prices down to liquidate highly leveraged positions, allowing them to buy at low prices and then push the market higher.
3. Going to the futures market instead of the spot market
Some investors prefer to trade in the forward market rather than the spot market because of the potential for quick profits. However, this shift reduces the influence of the spot market, which is the primary influencer of currency prices, resulting in weak spot demand and therefore lower prices.
4. Fear and emotional selling
When the market starts to decline, many investors tend to sell their assets for fear of greater losses. This emotional behavior increases selling pressure, leading to further price declines.
5. Impact of news and economic fluctuations
Negative news, such as regulatory tightening or a weak global economy, plays a major role in shaking investor confidence, prompting them to exit the market or shift their investments to more stable assets.
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Strategies for Dealing with Down Markets
To reduce the impact of these phenomena and achieve investment stability, investors are advised to follow thoughtful strategies:
1. Do not use futures contracts.
2. Long-term investment:
The market shows sharp fluctuations in the short term, but often shows positive growth in the long term.
3. Distribution of investments:
Diversification of assets helps reduce the risks associated with any particular currency or asset.
4. Monitoring news:
Keeping track of global events and economic policies helps predict price movements and avoid surprises.
5. Avoid emotional selling:
Investment decisions should be based on analytical principles, not fear or greed.
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Finally
Cryptocurrency downturns before upturns are part of market dynamics. Investors need to understand these dynamics and plan accordingly to make profits and avoid big losses. With the ever-changing market, flexibility and a willingness to adapt remain key qualities of a successful investor.
