What's Behind the Latest Cryptocurrency Price Slump?

The last few months of 2017 seemed too good to be true for many digital currencies. Bitcoin soared throughout the year, topping out at nearly $20,000 per coin at its highest point. Similarly, up-and-comer ripple grew by nearly 40 times in value over the course of 2017, finishing at more than $3 per token. More investors hopped on board the digital currency train in an effort to make quick money.

But now, in the first few weeks of 2018, we've seen many of the top digital currencies impacted by a severe slump. What is behind the recent price drops, and will they continue to worsen?

Bitcoin Falls to Roughly $10,000

Bitcoin's price has fallen by double-digit percentages in recent days, dropping below $12,000 for the first time since early-December, according to Tech Crunch. Ethereum, the second-largest digital currency by market cap, fell by more than 20% on January 16th, while ripple is hovering in the low $1.20s. (See more: Bitcoin Price Tanks: No Respite For Crypto Markets.)

It's not just the largest digital currencies that have been impacted, either. According to coinmarketcap.com, the 100 highest-valued digital currencies are all down this week, except for one called Tether.

Changes Are a Mystery

It's difficult to say exactly what has driven the price of these cryptocurrencies downward. It could have something to do with China's preparation to block domestic internet users from accessing international digital currency exchanges. This occurred after the country banned Chinese exchanges and ICOs late in 2017.

Reports have also suggested that South Korea is going to regulate cryptocurrencies in the near future as well. (See more: South Korea to Ban Anonymous Cryptocurrency Trading.)

As with most price fluctuations in the cryptocurrency world, the exact causes are difficult to pinpoint. The entire industry is known for its extreme volatility, and because a large number of cryptocurrency investors are not mainstream investors, they react to news shared via sometimes-unorthodox means, including social media and Reddit.

It's also entirely possible that the recent price slump is simply due to natural shifts in the digital currency market. Ironically, some analysts had predicted major gains this week, owing to the fact that Wall Street employees received year-end bonuses over the weekend. (See also: Wall Street Bonuses Could Fuel Huge Crypto Purchases and Price Spikes.)

Investing in cryptocurrencies and other Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns cryptocurrencies.

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