Here’s what I think why Bitcoin plummeted more than 20% recently.
First off, I’m going to make this post really short and to the point because there has been a lot of coverage in the media about Bitcoin’s price fall and I don’t want this post to be a repetition of the same topic. I’ve provided some of the links to the popular news sites below this post, in case you’d like to explore further.
Ok. I must confess that, when Bitcoin’s price was falling, I didn’t even realize it because it happened sooo… fast but most importantly, I DID NOT panic! The first thing I did was to seek out credible answers. For stuff like this, I usually turn to an expert like Chris Dunn.
According to Chris,..
“After Bitcoin gained about 30% over the past couple of weeks, it lost over $250 in value in 48 hours…And this caused a major flood of emails, tweets, and calls from people freaking out asking my thoughts about Bitcoin.”
Then Chris goes on saying…
Naturally, I have some fairly strong opinions about Bitcoin and why this crashed happened…
After becoming the top performing currency for 2015 and 2016, Bitcoin had a rough pullback the first week of January, 2017.
Thankfully, this is very predictable if you understand my 7-steps of a market boom-bust cycle…
1. A market enjoys a massive bull run. The bigger the gains the better for the hype cycle. It’s common for Bitcoin to see gains 100% or more in just a few short weeks.
2. This attracts media attention. All the media outlets will jump on the bandwagon and compete to be the source that pumps the positive news the most.
3. Investors and traders think it’s a productive use of time to watch networks like CNBC to make their investment decisions and end up buying based on the serious-looking TV pundits’ opinions.
4. The market blasts off in extreme parabolic fashion causing even more late investors to jump in the game.
5. Eventually, buyers dry up when there’s no one left to buy. Some people understand they might be the “greatest fool”, and begin to sell.
6. People notice price starting to fall, and end up selling quickly, causing the market to over-correct. Some investors who chased the top end up panic selling at the bottom. Instead of buying low and selling high (like they inherently know they should do, they end up doing the exact opposite).
7. After everyone has panic sold, the market stabilizes. In Bitcoin’s example, it reaches new highs after every major boom-bust cycle.
Here’s what I think…(no, not Chris. Me!)
A huge portion of the sudden BTC price movement up happened due to an influx of investors buying Bitcoin from China and India. Then, realizing the drastic effect of a digital currency like Bitcoin which cannot be manipulated, controlled or governed, the Chinese government especially out of the blues made an announced that they were going to tighten the rules of Bitcoin usage in China, hence, the wide-spread panic.
One of the comments I was reading in a Bitcoin forum the other day…
“some smart Chinese are desperate to get their capital out. Capital controls never work for long.”
Have to agree, right ! The Chinese are so fed up with their own government’s financial stance which has caused unhappiness and no-confidence of the Yuan, that they’d do anything to hedge against the losses. For me, I would have done the same thing. It wasn’t wrong what they did. It’s just natural for anyone to react that way.
Furthermore, you need to understand that in China, due to it’s sheer investor population, when a buy or sell triggers, it can move prices up and down quite a bit in the markets. And it’s not only for Bitcoin but also for any commodity, stock , options etc.
The question many may have in the minds after witnessing this event for the very first time is, “is this a good or bad sign for Bitcoin?”
You don’t have to listen to me, let’s hear what Chris Dunn has to say about this. [CLICK PLAY]
Some of the popular news sites that covered Bitcoin’s recent price crash:-
>> Bitcoin price falls by 20pc in dramatic crash – The Telegraph
>> Bitcoin crashes more than 20% to $890 after nearing all-time high – Investing.com
>> Here’s Why Bitcoin Crashed More Than 20% Today – Yahoo News
p.s. Did you watch the video? Tell me what you think in the comments below. Would love to hear your views. Cheerios 🙂
Chart images courtesy of Coindesk