The market has crashed again. This would be bitcoin a loop offaith third time this month a scare like this occurred. Panic selling ensues, exchanges grind to a halt, and the price drops even faster.
Hours later, even after a brief recovery, the state of the crypto world is painted red. Despite the blood, interesting questions remain. Why did the market tank today, June 26? What does this mean for the stability of the market in the future? I decided to try using System Dynamics to find an answer. This is the causal loop diagram I created to help bitcoin a loop offaith the phenomenon.
The idea behind a causal loop diagram is to depict visual trends to better understand the system as a whole. As interest in Crypto increases, so does the price of bitcoin. As the price of bitcoin increases, so does the interest in crypto. This is what we call a positive feedback loop.
By itself, it scales infinitely with no end in sight. Many of the loops in the middle are positive feedback loops. They continue to grow from each other and increase at an exponential rate, however, nothing grows to infinity.
The section in red shows the downfall of the system. Exchanges exist within the cryptocurrency space to provide a way to exchange different fiat currency and different coins with each other. This is the natural ecosystem for crypto. Bitcoin a loop offaith growth of crypto generates interest, which creates strain on the exchanges. We see people buying Ether and Bitcoin creating demand and increases the faith stored in the blockchain. Then we see the exchanges process these transactions and decrease that faith.
This shows a balancing act which is represented by the negative signed loops, also known as Balancing Loops. Here comes the tipping point. As more people become enthralled with the cryptocurrency space, more people want to carve a piece for themselves. More people dream of the possibilities with this new technology and its possible applications. With so many ICOs launching with overlapping windows, the Ether system grinds to a halt, unable to validate all the transactions running through it.
Slower validation times occur and faith in the blockchain decreases. This however is only the beginning. Faith in the bitcoin a loop offaith holds up this entire network of connections. As soon as faith in the blockchain goes down, bitcoin a loop offaith price of bitcoin follows, and then comes the price in every other altcoin, Ether included. Mass panic selling occurs as people scramble to recoup their money. This adds even more strain on the Crypto Exchanges and they go down temporarily.
Exchanges like Coinbase and GDAX simply cannot handle the load put upon them and collapse under its weight. This decreases the performance even more and faith starts to plummet. Small time investors start to swarm the small exchanges looking to buy in. The price is low -- the time is now! Cryptocurrency start seeing their descent slow and right before it can stop completely, the sharks come in. Attracted by the bleeding crypto the sharks come and buy up all the devalued digital assets, injecting huge sums of money into the system.
This causes Faith in Blockchain bitcoin a loop offaith stabilize, to increase. The money still comes in and restores faith in the system. Exchanges come back online, transactions are validated, and bitcoin a loop offaith gears start turning again…. Pick your spot, weather the bitcoin a loop offaith. Exchanges come back online, transactions are validated, and the gears start turning again… Pick your spot, weather the storm.
Authors get paid when people like you upvote their post. The market can be tough. But it can be modeled and that's an important point in itself.
Very interesting idea, especially with how large the discrepancies between exchanges can get at times. Sanitaer entenmann. This moment is profitable to start trading in the direction of the trend.