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Abstract. The article is devoted to theoretical substantiation and detailed consideration of the reasons for the sharp decline in the value of cryptocurrencies and the factors that influence this process, as well as to providing practical recommendations for investors.
Keywords: electronic, fiat, digital money, cryptocurrency, Bitcoin, cryptocurrency market, blockchain, blockchain technology.
Introduction. Statement of the problem and its connection with important scientific and practical tasks. Any thing or service has its own value – this is a fundamental concept that is understood by absolutely everyone. The monetary system has become more complex, but it has also become much clearer and more convenient: if people used to simply exchange goods with each other, now they have agreed that the so-called currency has its own corresponding value, i.e., humanity has introduced new valuable resources – money, but there was still the problem of its mobility – even in the 2000s, to send someone a certain amount of money, you had to go to the nearest bank or post office to make a money transfer. This continued until the revolutionary invention of the bank card. The card system allowed people to transfer money between themselves easily and quickly, and most importantly, to do so contactlessly [1].
Analysis of recent research and publications. Today, there is no consensus on the definition of the term “cryptocurrency”. Some scholars refer to it as a “virtual currency” and call it an innovative payment network and a new type of money, while others deny that cryptocurrencies are “involved” in them, calling them “digital assets”.The issues of the essence and development of cryptocurrencies, their types, advantages and disadvantages, and their use as investment assets or means of payment are raised by such scholars as: N.V. Archireyskaya, Y.V. Vereshchaka, A.V. Goncharova, I.G. Gul, O.V. Drachov, I.V. Zagorovsky, A.S. Karnaushenko, S.I. Knyazev, A.T. Kovalchuk, Y.V. Kotliarevsky, O.V. Kuchkova, A.A. Makurin, V.O. Mandryk, A.O. Myrhorodska, T.V. Momont, K.P. Stepenko and others. However, the problem of studying the development of cryptocurrencies and determining its role in the digital economy remains insufficiently studied by domestic scientists, which determines the relevance of further scientific research [2]. Like any money, cryptocurrency has advantages and disadvantages. In particular, the advantages include the following: – decentralization is one of its fundamental characteristics. These networks are located not on one or more servers, but on users’ devices, repeatedly duplicated. This approach makes it possible to prevent data loss, falsification, or damage. This network is almost impossible to “bring down” with attacks, because it is physically impossible to attack all of its users at the same time. Decentralization also becomes an obstacle to external regulation of the system. The authorities can block a website if its content does not meet the criteria of state dignity. This will not happen with the blockchain system: even if you take away the devices of hundreds of people, it will not disappear – their data will be duplicated on the devices of other users who have not yet been caught; cheap fees within the network – when we send money to each other using bank cards, we pay the corresponding fees almost every time.Despite the lack of physical form, cryptocurrency both meets and does not meet the concept of money, although bitcoin is already a means of payment in many institutions, including hotels, shops, restaurants, but is not officially considered money – first, cryptocurrency is not yet an officially recognized monetary unit and is not widely used as a means of payment; second, it is not a means of saving, since to perform this function, an asset must necessarily meet the following three requirements high liquidity; minimal risk of loss or depreciation during long-term storage; and its constantly stable value. Instead, cryptocurrencies do not meet any of these requirements. One of the most unpleasant disadvantages of most cryptocurrencies is their volatility. Cryptocurrency prices can drop rapidly at any time. In addition to this, it is worth noting that cryptocurrencies can change their price rapidly due to some related news only indirectly.
The first and most widespread cryptocurrency is Bitcoin, while other cryptocurrencies are built on the foundation of the open source Bitcoin and are practically no different from it, i.e., they are essentially its derivative. This explains their lower popularity. It is important to note that Bitcoin is based on blockchain technology (block chain). The blockchain is a public database of all transactions ever made in the Bitcoin system, which is organized into a system of data blocks. Using this database, each user can find out how much Bitcoin belonged to a particular wallet at a certain time. But Bitcoin also has its ups and downs.
Fig. 1. Bitcoin rate for 2019 in relation to US $ [2].
The main advantages and disadvantages of cryptocurrencies using modern state-of-the-art research methods are clearly stated in the article by Trach Roksolana [2], which states that:
| Advantages | Disadvantages |
| cryptocurrency transactions are completely anonymous and confidential, as all information about transactions is encrypted in a set of characters, personal data is not tied to the wallet cryptocurrencies; | technical difficulty of use. Work currencies can only be used where they are accepted and there is a technical possibility for this (Internet, two installed computer programs, specialists); |
| each unit of cryptocurrency has a unique code and protected against forgery; | unreliable object for investment due to large and sudden rate fluctuations; |
| cryptocurrency is decentralized, that is, it does not have control center, because of which the founder of digital money or any financial institution cannot to influence its existence; | the possibility of deploying speculative and fraudulent transactions through the creation of a financial pyramids, receiving interest and playing on the differences exchange rates; |
| each unit of crypto currency is untethered to any of the banks, which significantly reduces the amount transaction fees; | legal unsettledness, which makes it impossible taxation of transactions. As a “product” computer programming virtual BTC, LTC etc. do not have any legal status; |
| lack of attachment to banks contributes significantly reduction of time spent on operations with cryptocurrency; | cryptocurrency opens up new opportunities and tools for functioning of black markets; |
| operations are carried out directly between different by owners of electronic wallets, which contributes increasing the speed of operations and commission reduction; | new opportunities and tools for evasion from taxes thanks to the system’s decentralization; |
| emission of most types of cryptocurrencies has the maximum threshold caused by finiteness of all possible combinations of forming symbols each new unit of contributing crypto currency reduction of unjustified money supply in circulation and reducing the level of inflation. | a potential opportunity appears anonymous transactions by criminals; |
| new possible money laundering schemes; | |
| impossibility of freezing accounts, considering on the lack of control over the system by third parties individuals, including the state; | |
| inability to stop or cancel transactions. |
I would like to inform investors that the main reasons for the collapse (fall) of the cryptocurrency market (a sharp decline in the value of digital assets when the price drops by 10% or more in one day) are: changes in legislation related to cryptocurrencies, rumors of hacker attacks on exchanges, transfers by “whales” – market participants who own significant amounts, a sharp decline in trading volume, and the introduction of new legislative measures. A way to protect against “significant” losses is diversification: Distribution of funds between different assets; understanding of market trends: tracking market conditions and destabilizing factors; use of stop-losses: automatic sale of assets in case of a fall in the exchange rate, short positions: Selling cryptocurrencies for the purpose of subsequent purchase at a lower rate; emotional discipline: Decisions should be made based on objective analysis, not emotions [3].
Conclusion.
The sharp decline in the value of cryptocurrencies is the result of a number of factors affecting the market. Cryptocurrency volatility can be both a source of profit and a cause of significant losses. To mitigate risks, it is important to monitor the market, diversify your investments, and develop a strategy in case of a collapse. Staying calm, following a plan, and taking into account current trends will help you avoid serious losses.
References:
1. Myzyka, D. O. (2021). Kryptovaliuta jak ekonomichne pjavyshche [Cryptocurrencies as an economic phenomenon]. Kyiv: National University “KyivMohyla Aca demy”, 2031. 27 p.
2. Trach Roksolana, Economy and Cryptocurrency – The Future of Existence, International Journal of Research Publication and Reviews, Vol 6, no 1, pp 524-530 January 2025, https://ijrpr.com/uploads/V6ISSUE1/IJRPR37576.pdf.
3. Trach Roksolana, “Sharp decline in the value of cryptocurrencies – what is the reason?”, Ministry of Finance, 05.12.2024, https://minfin.com.ua/ua/blogs/roksolana24/250325/
Author :
Zvarych I.T., Doctor of Political Sciences, Professor of the Department of Management and Marketing, Prykarpattia National University named after Vasyl Stefanyk
Успішний криптотрейдер
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Експерт порталу Cryptonovunu. Учасник конференцій присвячених криптовалютам.
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