This year was totally the year of Bitcoin, with the cryptocurrency surging from $998 to almost $20,000. But until December 22nd only. The cryptocurrency dropped as much as 23% on Coinbase, falling back at $12,000.
As nobody knew the reason behind its insane upward journey, similarly nobody knows what exactly caused the red-hot currency to lose value.
Coinbase down, cryptocurrency holders petrified and the rest of the world confused.
So, as we all are unaware of the ‘actual’ reason behind this downfall, we’ve summed up a few cases that might’ve played a smaller or bigger role.
1. End of the year
As the end of the year is actually the beginning of festivities, it is really a hard time to keep savings saved. The month of December holds major holidays like Christmas, Hanukkah, and Kwanzaa and obviously, it is the month before the New Year so people celebrate by spending their investments and savings.
Now cryptocurrencies, due to their instability, cannot be used in everyday transactions. Most of the retailers don’t even consider it as a legitimate currency and therefore do not accept it, leaving any choice for investors except to convert their precious digital assets into real cash.
So apparently, most of the Bitcoin holders found December 22nd the perfect day to cash their bitcoins, thus causing this sudden decrease in value.
2. Altcoin success
Bitcoin is the king of cryptocurrencies and king is always being followed. So along with BTC, a number of other altcoins saw major gains too. For example Cardano, TRON, Ripple, Qtum and Verge.
As the surge in bitcoin value results in an incline in altcoin values, investors were hopeful for altcoins reaching similar heights like bitcoin. This motivated them to reach for different exchanges and divert their funds from bitcoin and thereby shaking the bitcoin market.
3. Coinbase and Bitcoin Cash confusion
On Tuesday19th December, Coinbase launched Bitcoin Cash on its site but suspended its trading minutes after the launch.
Both BTC and BCH have been a part of community in-fighting lately. Heated debates followed the cryptocurrencies regarding which one is actually ‘true’. Some even suspected that BCH might end up on Coinbase. Among this chaos, when BCH price surprisingly inclined before Coinbase’s announcement, the exchange firm immediately disabled all bitcoin Cash trading and called for an insider trading investigation.
All operations were re-established the next day however, the situation left a deep mark on everybody’s minds. The sharp drop in BTC price when BCH was introduced and the BCH’s assumed volatility made the situation smells fishy. The concept that everybody had regarding cryptocurrency was blurred due to the sequence of events. Investors were surrounded by a lot of confusion, which kept them away from further participation.
4. Market Manipulation by Whale investors
A recent report released by Bloomberg revealed that almost 40% of the bitcoin market is owned by a group of 1000 investors. These ‘whale’ investors holding a huge stake in the market are capable of manipulating it anytime.
How? The 1000 investors can easily get engaged in “painting the tape”. Meaning they can fake a high transaction volume by simply selling and re-selling their bitcoins on small margins. After the digital currency reaches the highest price, they can sell off all of their stakes at a substantial amount of profit, inducing a sudden crash. Then they would buy them again when the market is dropped to record lows.
This is made even more appealing with the introduction of bitcoin futures on CBOE and CME that lets two parties settle future contracts by betting upon the future price of bitcoin.
5. Cryptocurrency Regulations
Due to its anonymity, cryptocurrencies are a safe play for criminals all around the world and therefore the cryptocurrency market has been facing regulations by governments.
Earlier this month the Security and Exchange Commission suspended PlexCoin on charges of being an ICO fraud.
This week the SEC disabled bitcoin trading in The Crypto Company until January 3 over “concerns regarding the accuracy and adequacy of information” and stock manipulation.
The UK and EU governments also planned a crackdown on bitcoin amid crime and money laundering concerns.
With the rise in bitcoin value, a sudden increase in cyber attacks has been observed. Most of the attacks are targeted at the most valuable cryptocurrency that is none other than bitcoin.
Earlier this month, $60 million worth of bitcoins were stolen from a Slovenian-based mining platform NiceHash.
A South Korean exchange YouBit announced bankruptcy on 20th December after being hacked for the second time.
Hacking risks have definitely scared of the potential hackers and caused the existing ones to cut their losses.
7. Was bitcoin really a bubble?
Bitcoin had been bearing the heat of criticism for a long time. The cryptocurrency had been accused of being a bubble ready to pop anytime soon.
So has the bubble already popped or is it just a phase. Bitcoin had always been on a humpy track and it is nothing unusual for the virtual currency to go through a ‘cold’ phase. However, the only thing new here is the volume of BTC holders. A lot of new participants have entered the cryptocurrency market and are completely naïve regarding its ups and downs, thereby being more sensitive to downfalls.
We are still not sure if bitcoin has entered the cold phase. It might soon jump back to record high price again. We never knew and will never know what this rollercoaster ride has in store for us.