Cryptocurrency prices tumbled Monday, with the previously surging Ripple one of the most affected by the sudden drops. As with any sudden reversal in value, there’s an unavoidable question: Is this the first sign of a bubble bursting?
While it will take time to know the answer for certain, it is at least possible to trace back to the original reason the price of Ripple and other cryptocurrencies fell.
On Wednesday the found of Tron, Justin Sun, tweeted out what he saw as the cause of this crypto market tumble.
CoinMarketCap — an extremely popular website to track the price of various cryptocurrencies — abruptly decided on Monday to exclude what the South Korean exchanges value each of the coins when it averages prices.
The problem is the Korean exchanges are known to value cryptocurrencies higher than a lot of other markets. In fact they were the driving force behind Ripple’s recent price boom.
Logically, excluding a big number when you’re calculating an average will cause the final price to dip. This coupled with the fact that CoinMarketCap made this move without as much of a day’s notice caused the price to further tumble, as skittish investors thought this was the sign of something beyond a change to a formula.
A sudden price drop caused investors to sell out of fear that their investments would further devalue. This exodus of investors caused the price to fall even further than the initial shock. This isn’t exactly what you want to do to an already volatile market
Ripple, which was the cryptocurrency hit the hardest by this, was hovering at around $3.20 before CoinMarketCap’s change sank to as low as $2.07 on site on Monday. On Wednesday it dipped even lower, reaching $1.70 at one point. At the time of writing the cryptocurrency has risen above the $2.00 mark once again.
While it might be too soon to label this as the crypto bubble popping it, it is the most troubling of the price dips we’ve seen. With the other price corrections there wasn’t any one event or events tied to the devaluation, it was simply a market correction. This time though, there was a clear series of occurrences that tanked the price of most cryptocurrency.
It would be best to trade with caution moving forward.
Note: An earlier version of this story identified Justin Sun as the founder of Ripple. He is in fact the founder of Tron.