Crash Course: One new reason why Bitcoin bubble is bursting
Remember when Bitcoin dipped below $10,000, losing 50% from December 2017 values at near $20,000?
That was only a couple of weeks ago. Today, it broke the $6,000, only downwards again, sinking as much as 16% to $5,992 on Tuesday.
At publishing time, Bitcoin traded at $6,139.
And it’s bringing the entire Bitcoin family with it.
According to Business Insider (BI), Bitcoin Cash hasn’t been immune from the latest selloff and has fallen below $1,000, for the first time since last November.
And other cryptos a well.
Alternative coins Ripple, Ether and Litecoin all tumbled at least 14%, according to Bloomberg.
What’s going on?
One issue is technical.
Is there is a way to stop the slide for cryptos, which are not subject to any regulations, don’t store value, and are as erratic and volatile as no asset class on earth?
Greg McKenna from AxiTrader told BI: “Increasingly this is looking like a falling knife no one wants to catch. And why would you right now? It’s not obvious what a circuit breaker to this weakness will be, or might emerge from,” McKenna said.
“This could end up a full round trip back into the $1,850 / $2,966 region,” he said.
BI said most other major cryptocurrencies have fallen by between 40-70% over the last month, amid increasing scrutiny from global regulators.
This table from Markets Insider summarises the price action of the major cryptocurrencies over the past month
Yesterday, UK bank Lloyd’s joined it’s US branch and a number of major lenders in banning the use of credit cards for the purchase of Bitcoins or other cryptos for fear people would lose their credit should the digital currencies experience what is exactly happening now.
Last Friday, J.P. Morgan Chase, Bank of America and Citigroup also said they have decided to ban cryptocurrency purchases by their credit card customers.
BI said Chinese authorities have banned access to both domestic and foreign cryptocurrency exchanges and ICO (Initial coin offerings) websites.
The cryptocurrency market has lost $340bn of value since the start of January, and many speculate it has much to do with a regulatory crackdown in Asia.
China news agency Xinhua said regulations on domestic crypto investors engaging in foreign transactions of ICOs and virtual currency would be tightened.
China houses some of the world’s largest bitcoin mining operations
South Korea and India are moving towards a ban of cryptocurrency exchange trading as well.
US crackdown and bear sentiment
Bloomberg said that the latest bout of regulatory jitters centered on the US is that the country’s two top market watchdogs are planning to ask Congress to consider federal oversight for digital-currency trading platforms.
“Chiefs of the Commodity Futures Trading Commission and Securities and Exchange Commission will appear together at a Senate Banking Committee hearing today,” said Bloomberg.
“This week’s selloff has coincided with a rout in global equities, with markets in Asia extending losses on Tuesday following a white-knuckle day for U.S. stocks.”
New reason: A pressure cooker
24-hour trading volumes, according to CoinMarketCap have been in the $20bn to $30bn range since the beginning of February, down from an all-time high above $70bn set January 4.
“The record-breaking volumes of December and early January put intense pressure on the weak infrastructure of cryptocurrency exchanges, leading to hours- and days-long outages. Many even had to close the door to new customers,” according to BI.
“In order to handle the demand in the market, cryptocurrency exchanges extensively built out their infrastructures.”
But such upgrades require talent that is in short supply and that talent shortage is the big concern hanging over the head of cryptocurrency companies.
As noted by Bloomberg, the number of blockchain or cryptocurrency job postings on LinkedIn increased fourfold in 2017.
Downward we go
Bloomberg said that some technical indicators suggest the rout in Bitcoin has further to go.
“The cryptocurrency’s Moving Average Convergence Divergence indicator, the most profitable of 22 trading signals is suggesting further downside after turning bearish in December,” Bloomberg reported.
“Bitcoin also dipped below its 200-day moving average for the first time in more than two years on Tuesday. The last time that happened, in August 2015, the cryptocurrency sank as much as 24 percent over the following two weeks.”