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What on earth is driving the price of Bitcoin and other alternative currencies down lately? It's one thing for it to go down a bit but losing practically 80% of its value in less than a year? I feel like bitcoin is coming to a complete collapse. A list of the most important factors and a detailed explanation would be great guys.
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Adding to my answer on What are some of the proposed ideas to why the Bitcoin dropped to sub $400 in the end of summer 2014?, which I think is still mostly accurate:
There are about 19k bitcoins held by the hacker that raided Bitstamp. While, as far as I know, they haven't found their way back into the market, it is an amount that would impact the markets if it were dumped. It is possible that some speculators were expecting a dump, and tried to position themselves to buy low. Such a dump in itself could have scared the already skittish market into further dumps.
While Bitstamp seems to have weathered the hack well-enough, they are not taking any trading fee until the 19th. The fee usually being 0.2% – 0.5%, trades on much smaller movements are currently profitable. As Bitstamp is still the most important Western Exchange, this might have spiked a new dynamic.
Markets amplify the current trend. The loss in value is causing fear, leading to further dumps, creating a catch-22.
Bitcoin supposedly was a hip way to withdraw money out of Russia for a while. Although Russia had been rattling with their saber a while towards Bitcoin, they are finally starting to take action by blocking Bitcoin services there now. This might induce a trend of Russians moving out of Bitcoin.
Apparently, Butterfly labs has been ordered by court to refund their customers. According to rumors on reddit, they have been selling thousands of Bitcoins and are still sitting on more than 90k.
A bunch of mining operations, as for example CEX.IO, have cited that the current price makes their mining unprofitable. To cover financial obligations, they have to liquidate a larger percentage of their bitcoins than before, perhaps even their saved holding they were hoping to carry over to the next bubble. With the dropping price covering their obligations by liquidating bitcoins only gets more bitcoin-expensive.
When the price quickly lost value, few of those that were interested in catching up the cheap coins were already in position to buy. As it takes a few days for money to be transferred to exchanges, the buy reaction is a bit delayed in comparison to a price drop.
Especially on Bitstamp where deposits were closed for a few days during the slump in the aftermath of the hack, people were probably waiting for the dust to settle. In fact, a lot of the deposits from Bitstamp were immediately withdrawn on reopening.
Once the dust settled, and people started to realize that Bitstamp actually appeared to be in good shape, it still took a few days for potential buyers to transfer money to Bitstamp, which would explain why the price was somewhat shifted lower on Bitstamp in comparison to other exchanges for a while.
As usual: I'm a computer scientist, not knowledgeable in economy beyond what I read here and there. Please do not consider this investment advice; I have been wrong before. Please trade responsibly.
2I've just added a few more points. – Murch – 2015-01-15T10:30:49.500
1 Hi @Martin Robert, if this or any answer has solved your question please consider accepting it by clicking the check-mark. This indicates to the wider community that you've found a solution and gives some reputation to both the answerer and yourself. There is no obligation to do this.
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1) I don't know anyone actively uses Bitcoin, or other altcoin, that is not mining it and/or trying to profit from it.
2) Bit coin price fluctuates, so as a business I would only use it to process a transaction and then convert it to cash ASAP.
3) Why is everyone losing Bitcoin in the news? True cash gets lost or stolen, but this make me fearful that my digital wallet could get lost or hacked. This may not be true, but it's how people feel. Losing money forever sounds bad, like I lit my cash on fire.
4) The anonymity of Bitcoin makes it more susceptible to sensational scams and tax evasion which do not help in giving it credibility.
5) The concept and encryption process is incredible, what a great geeky hobby. I honestly don't know anyone that uses it other for fun or speculation.
6) If the Warren Buffets of the world aren't on board, it makes it difficult.
“Stay away. Bitcoin is a mirage. It’s a method of transmitting money. It’s a very effective way of transmitting money and you can do it anonymously and all that. A check is a way of transmitting money, too. Are checks worth a whole lot of money just because they can transmit money? Are money orders? You can transmit money by money orders. People do it. I hope bitcoin becomes a better way of doing it, but you can replicate it a bunch of different ways and it will be. The idea that it has some huge intrinsic value is just a joke in my view.” - W.B
Honestly, comparing bitcoin to checks is a display of full ignorance when it comes to bitcoin, bitcoin was programmed to simulate gold, not checks, the difference from gold to checks is that you can't make gold, you can only mine it, and there's a very limited amount of gold available in the world to be mined. – Eduardo Wada – 2016-06-12T22:21:58.793
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Bitcoin’s price has crashed. There is simply no other way to describe the -40% price decline that occurred in the first two weeks of 2015. It’s dismal, it’s disappointing and it’s a normal part of a free and open market. While Bitcoin is a transformative technology, it is not immune to the greed and fear that permeate every financial market.
Speculating on the true intentions of buyers and sellers in any market is a fool’s errand, but we can identify some catalysts. In this case, there appears to be three events that could be to blame for the price crash: BitStamp, CEX.io, and Russia.
BitStamp
BitStamp is one of the largest bitcoin exchanges and it was hacked last week. Before the exchange realized what was going on it lost over $5m in bitcoins to the hackers. To its credit, BitStamp shut down operations and made every investor whole before re-opening with vastly improved security. Nonetheless, the blow to confidence in undeniable and its seems plausible that some investors were spooked and liquidated holdings.
CEX.IO
CEX is one of the largest mining operations in the world - it operates the GHash mining pool and sells mining contracts via the cloud - in the digital currency industry this is called ‘cloud mining’. The recent price slump has made these mining contracts unprofitable and CEX has shut down these mining operations. It’s likely that owners of these contracts have liquidated in favor of fiat currency - weighing on the price of bitcoin. Coindesk has an excellent post on the subject here.
Russia
Russia has threatened to make Bitcoin illegal for the better part of 2014. However, it had not taken any action until recently. This lack of action made bitcoin a hot investment as the Russian currency collapsed. Many speculated that wealthy Russians were using bitcoin as a way to withdraw money from Russia. In the last few days, Russia has begun to ban Bitcoin websites. For those interested in reading more, Engadget has a good post here.
Negative Feedback Loop
Unfortunately, these catalysts are conspiring to create negative feedback loop - the falling price is making more mining operations unprofitable, which in turn is resulting in more liquidation. This phenomenon is not unusual in markets and identifying these feedback loops can be quite profitable. Until another catalyst forms and breaks the loop the price of bitcoin will remain depressed.
I don’t know when or what will break the loop, but I do know that this will not be the last time it occurs. There are few guarantees in financial markets, but I am sure that bitcoin will experience irrational bubbles, crashes and feed back loops (positive and negative). This fact has nothing to do with bitcoin the currency or technology; it has everything to do with human nature.
Like any market, Bitcoin is an open natural system and is subject to the panic and euphoria that engulf all financial markets from time to time. It’s dismal, it’s depressing and…it’s normal.
Good explanation from here: http://briankellycap.tumblr.com/post/108083988817/why-bitcoins-price-has-crashed
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My speculation about this was that the Ethereum IPO saw a large amount of bitcoins sold and converted to Fiat. Therefore it started a wave of selling which became big and caused large amount of people to sell their coin fearing the price drop. It all came down in a wave, and in a short period of time.
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We needed to retest the previous support line created from the first bubble that went to $250. Traders will see this and come back to speculate on bitcoin in and around this price range. You can already see the bottom forming as of July 2015. I assume there will be alot of consolidation/sideways price action before any substantial move up. If it takes out the $250 lows, then I would think Bitcoin is not a worthy enough instrument to speculate on, and deem it as predictable as a pennystock in the real markets. (95% of pennystocks collapse and eventually get delisted) Personally I've thought a real lot about bitcoin and I no longer think of it as a viable currency but more as a speculative equity that receives alot of promotion making it pop here and there. I'm only long bitcoin because Technical Analysis says its a good time to buy near $250. I do plan on selling if it goes below 250. As long as it remains above that price I'll stay in bitcoin.
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Because bitcoin is a pyramid scheme. And it falls now.
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I'd say pretty much still the same as in autumn: What are some of the proposed ideas to why the Bitcoin dropped to sub $400 in the end of summer 2014?
– Murch – 2015-01-14T13:45:28.493But now it broke the 200 mark. I feel like it might be on the verge of collapsing. There has to be something more concrete. – Martin Robert – 2015-01-14T13:48:53.550
1-80% in a year is a pretty slow decay by bitcoin standards. – CodesInChaos – 2015-01-22T17:21:28.477