Why Did Bitcoin Lose Almost Half Its Value In $187 Billion Dollar Plunge?

The 45 percent plunge highlights just how absurd bitcoin's price increase was that this year. The correction has only wiped out about two weeks' worth of profits, bringing the currency back to December 6 amounts.

“I had been there during the 2013 crash, therefore unless it drops more than 95 percent [I am] not really fussed,” Sydney investor Justin Zhu explained. “I actually completely forgot about my bitcoin till somebody told me it went over $US1000 again earlier this year.”

The 31-year-old said he'd stopped looking at the prices. “A correction is really healthy overall, I believe,” he explained. “There are just a lot of basic issues like transfer times [and] penalties that will be fixed, together with the civil war situation involving bitcoin and bitcoin cash that needs to be dealt with first.”

Following analyzing the $US20,000 milestone on Sunday, bitcoin spent the week at decline before abruptly crashing on Thursday, bottoming out at below $US11,000, based on research site CoinDesk.

That brought bitcoin's market capitalisation — that the price multiplied by the amount of coins in circulation — from roughly $US330 billion to a low of $US186 billion. And it is not just bitcoin. Countless billions of dollars have been wiped off the value of cryptocurrencies this week, such as ethereum, ripple, litecoin as well as bitcoin money. The bitcoin “fork” has pulled following spiking after a controversial debut on the Coinbase market, which ignited an insider trading investigation and triggered by a sell-off at bitcoin.

Between Thursday and Friday, the total cryptocurrency market dropped by more than 35 per cent in the peak market capitalisation of $US654.1 billion to $US422.4 billion — a loss of $US232 billion.

Coinbase Suspends Trading

The crazy sell-off motivated Coinbase, the world's largest cryptocurrency market, to temporarily suspend trading on Friday, together with two others.

“Because of the modern high traffic, purchases and sells could be intermittently offline,” a notice on the website read. “We're working on restoring complete availability whenever you can and will be posting status updates”

On bitcoin message boards, users resorted to gallows humour. Others posted memes, including the Black Knight from Monty Python and the Holy Grail: “It's only a flesh wound.”

Another user argued the latest crash was a test for long-term holders of bitcoin, called “hodlers”. “The new guys really have an incentive to keep on holding,” they wrote. “They got to the crypto match to generate money, not lose it. They are likely to continue holding until they make their money back or gain.

“The Warriors out of 2016 and sooner could cash out now if they can't handle the pressure. They are already making a great deal of money, less than they would have created a week ago. This is not the same pressure as from two decades back. A LOT more money is demanded.”

The reason behind the massive correction is unclear.

Charles Hayter, founder and leader of business website Cryptocompare, said that lots of traders would happen to be headquartered in on their enormous profits to close out the year. “A manic upward swing led from the herd is going to be accompanied by a recession as the psychological sentiment changes,” he explained.

It arrived as billionaire former hedge-fund director Michael Novogratz, a vocal proponent of bitcoin, announced that he was putting strategies for a cryptocurrency hedge fund on hold and called bitcoin could extend its drop to $US8000.

“We did not like market conditions and also we wanted to reevaluate what we're doing,” he told Bloomberg. “I look fairly clever pressing the pause button at the moment.”

John Kicklighter, chief strategist in IG Chicago, stated the “speculative frenzy” behind bitcoin appeared to be dying down. “Looking back, 2017 will certainly be regarded as the year of the cryptocurrency and this particularly larger-than-life coin will be at the middle of this review — but not likely for its own virtues,” he stated in a note on Thursday.

“The surge that bitcoin enjoyed particularly between October and also the summit in December was fuelled by the momentum it drove rather than the authentic financial disruption that believers had ascribed to it.

“In other words, much of that explosion was only speculative. Proof of this may be found from the numerous stories concerning the time it takes to settle transactions (times) and the average price per trade (over $US20).

“These don't match what we would expect from something which is allegedly billed as the replacement of fiat currency.”

Mr Kicklighter stated if it was “virtuous adoption” of electronic currencies, he would have expected alternatives that addressed those specific problems, such as litecoin and ethereum, to have “led the charge”.

“They didn't,” he said. “The question today is how much surplus is priced in this marketplace and this coin?”

Before this month, the launch of bitcoin futures on two of the biggest markets, the Chicago Board Options Exchange (CBOE) and the Chicago Mercantile Exchange (CME), was hailed as the volatile currency's mainstream second, which would trigger a flood of institutional investors.

Futures make it possible for traders to bet on the rise or fall in their currency. Cameron and Tyler Winklevoss, bitcoin billionaires and founders of the Gemini Exchange, that partnered with CBOE for its futures product, said it was an opportunity for the naysayers to set up or shut up.

“This arrangement actually enables one to brief bitcoin,” Tyler told Fox News earlier this month. “Talk is cheap. Today people may put their money where their mouth is, if that's [JP Morgan boss] Jamie Dimon or somebody else, they may be clear about how much they're personally betting against bitcoin.”

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