Through the night we've seen signs of a potential upswing–but most are left wondering what might have caused such a massive drop in the price of Bitcoin and other currencies. Only time will tell, however, in the meantime, here are 6 possible explanations for your day's dip.
6 Potential Reasons For Why Bitcoin Has Dropped In Value
It might seem funny when you first listen to it, but with major festivals such as Christmas, Hanukkah, Kwanzaa, and New Year's planted right in precisely the same month stretch–the close of the year is a notoriously awful time for savings accounts and investments, as many seek to draw annual gains.
Setting aside speculation as well as the overall (deserved) fervor about blockchain technology, few cryptocurrencies currently serve a purpose that benefits the average consumer more than money does. With a few exceptions, cryptocurrencies are more difficult to use for regular transactions, meaning many in the market are there for speculative investment. Speculative buyers do not necessarily equate to market equilibrium–as many will attempt to cash out on early gains as opposed to ‘hold' through the waves of market volatility.
The close of the year marks the time when these investors are likely to convert their winnings to cash, and yesterday–conveniently just a few days before Christmas–might have been the day which experienced the greatest effect of the behavior.
2. Too Many Altcoins
This has definitely felt amazing to the shareholders motivated to leave the safe sanctuary of Coinbase for the further reaches of the other exchanges–you might even say too good to be true. In the process of diverting capital from BTC, excited crypto traders may have also briefly destabilized the Bitcoin marketplace.
If Bitcoin were another coin, then that could be all well and good, but Bitcoin is your “gold” of this cryptocurrency planet–the standard by which all other coins are quantified. So if we like it or not, each altcoin is hedged (somehow) along Bitcoin's success–or at a minimum for the near future, its maintenance.
3. Bitcoin Cash Confusion on Coinbase
Coinbase wants to utilize digital cash to reevaluate finance. From the company's version of the future, loans, venture funds, cash transfers, accounts receivable and inventory trading can be done with electronic money, using Coinbase instead of banks.
Considering the August fork, there's been major community in-fighting among the BCH and BTC camps regarding what is the “authentic” Bitcoin. Point being energy is high around this particular discussion. Many have speculated that BCH would end up on Coinbase, but even conservative estimates in crypto circles were January 2018.
So it's no surprise that the noticeable and apparently out-of-the-blue gains made in BCH at the hours and days leading up to the announcement caused a few on interpersonal media to shout “insider trading.” This led in Coinbase shut down BCH trading within minutes to start an internal probe to the chance that insider trading happened.
By the next afternoon, BCH was in full force again on Coinbase. However, the effect might have been deeper felt than we initially realized. Many have a passing understanding of these differences between BTC and BCH, and seeing BTC prices fall so aggressively when BCH jumped onto the scene–as well as BCH's perceived volatility–might have left a larger stain in their heads on the wider concept of cryptocurrency.
For those who did not pay too much focus on the hullabaloo, it might have only amounted to extra, unwanted confusion to keep them from participating further.
4. Market Manipulation
A recent report in Bloomberg revealed that a set of 1000 investors possess 40 percent of all Bitcoin. This means that–if even some among that amount were acting in concert, then they would possess the potential to manipulate the marketplace to their own instinct.
All these “snakes”–investors, hedge funds, and differently with sufficient stake in the crypto market to tip the scale–could easily have engaged in “painting the tape” (producing the overall look of high trade volume simply by selling and re-selling back-and-forth on small margins) to match the worth of Bitcoin.
Why do they do that? So they might sell off at the highest possible cost before inducing a crash by selling off mass quantities of the Bitcoin stock. Of course, this may only work so much unless others start to take note and market their own Bitcoin off; that's where the influx of new traders comes in to play.
By basically scaring fair-weather lovers with FUD (“fear, uncertainty, and doubt) who started buying in about the crypto hype without a lot of research of the market, whales endure to make off like bandits. How? By selling off at record highs, falling the market to record lows, then buying back in.
This is made even more appealing with the launching of bitcoin futures trading on Cboe and CME, which sets up these players to short the market.
Earlier this month that the SEC halted PlexCoin on charges of becoming an ICO scam, and this week it allegedly suspended trading in The Crypto Company over “concerns regarding the accuracy and adequacy of information” and inventory manipulation. Meanwhile, Youbit, the favorite South Korean exchange, declared its closure on Dec. 20.
As an added note, the ‘insane' energy costs associated with Bitcoin mining continue to garner negative media as we proceed into the new year.
There is a possibility that the general concern created in these improvements has scared off investors and even compelled existing participants to decrease their losses.
6. A Bitcoin Bubble is Bursting
Obviously, there could be some truth to each of the above, and together are amassing to the bubble soda that most happen to be warning users around for months.
The argument against this being a indication of crypto winter is that we've seen this degree of volatility at Bitcoin all throughout 2017 (and even before). The difference now is that the sheer quantity of players is a complete exponent greater than it's ever been–and lots of new participants don't have any experience navigating these kinds of markets, which makes them even more sensitive to the down times.