What caused the drop in Bitcoin? Hint: It might not be what you think...
For months now, Bitcoin has gone basically one direction, up.
There had been minor corrections along the way, in both September and November, but nothing really significant since August.
That all changed last night when Bitcoin and many other cryptocurrencies plunged by as much as 40% in less than 12 hours.
That is by far the biggest move down in that short of time that we have seen in months.
What caused the drop?
Well, like many dips in the past, the specific cause isn't always clear.
Some are speculating that it had to do with the hacking of the South Korean crypto exchange Youbit. Where roughly 1/5th of the exchange's holdings were stollen by hackers.
http://money.cnn.com/2017/12/20/technology/south-korea-bitcoin-exchange-closes/index.html
The exchange immediately became insolvent following the hack.
Some other speculations had to do with the drama surrounding the bitcoin cash inclusion on Coinbase, which saw prices briefly reach $8,500 within minutes of enabling trading on the coin.
Trading was immediately halted and a more "normal" roll-out was done hours later, which still saw prices of bitcoin cash climb by roughly 100% from its pre Coinbase addition prices.
Much of that price appreciation came at the expense of bitcoin, as it's price dropped by roughly the same amount that bitcoin cash's price gained.
The most likely cause for the drop?
This is my opinion, but I would say the most likely cause for the drop was a combination of the above and also something else... something a little more sinister.
I think there was big time price manipulation going on.
I think there was price manipulation going on during the runup in prices and I think there was price manipulation on the drop we are currently seeing unfold.
According to a report released a few days ago, roughly 40% of all the circulating bitcoins are owned by roughly 1000 investors.
These investors are mostly made up of wealthy individuals, some institutions, and some hedge funds.
Given the large percentage of the asset they hold, it would not take much collussion on their part to really affect prices.
For example, if just a couple of these guys (or hedge funds) got together and decided they were going to get involved with a wash trading scheme in order to walk prices up, it really wouldn't be all that hard.
Plus who is to stop them? There aren't really any regulators policing this kind of activity.
The scheme:
Basically, the way it would work is that a couple of these large holders would just start trading back and forth among themselves, creating the illusion of heavy trading volume.
In doing so, they could also walk prices up or down via wash trading.
So, the net effect would be increasing prices and steady (high) volumes all the way up.
The increased prices would draw in retail investors/traders and also draw in the media which starts blasting stories on bitcoin 24/7.
Then when prices get "high enough" and there is enough outside money entering, these large holders start to dump some of their positions on the newly invested retail players.
Driving prices down, quickly past where retail entered, causing retail to panic sell and further drive prices down.
The net effect becomes a plummeting bitcoin price.
Then, when prices get low enough, which in this case was roughly 50% off the highs, the big players show back up and buy up their positions again.
Rinse and repeat.
This kind of thing becomes even more profitable when you factor in the futures/options markets where these large players could have also bought puts and sold calls before they drove prices down, thus making even more money on the move.
I can't say for sure that this is what is happening, but to be honest, I would be surprised if something like this wasn't happening.
Greed is a very powerful motivator... and if something is wreckable, it will be.
Stay informed my friends.
Image Sources:
https://www.ccn.com/bitcoin-price-manipulation-centralized-exchanges-seems-coordinated/
http://www.livebitcoinnews.com/bitcoin-price-suffers-behind-scenes-manipulation-intensifies/
Follow me: @jrcornel
Thank you for posting
Once Wall $treet gets involved, it's game over. They are masters at these tricks and the crypto space is virgin territory for them.
Totally agree. This looks too coordinated. Plenty of alts and BTC all drop at the same time pretty significantly, and then the whales pick them back up at low prices. This has been going on for awhile, but now the drops look bigger due to the higher prices in the crypto world.
I just donated some blood, sold a kidney and sucked an old guys dick to get some cash to buy it when it was at $20k!
At least it will be worth more than a cheeseburger. 😂😂
Great analysis @jrcornel.... In regards of Youbit hack, some people said that hackers cashing out the the money thus driving the market down. Bitcoin vs bitcoin cash drama is just began, we might see a lot of people dump bitcoin and convert it to BCH (nowdays there are massive campaigns to replace bitcoin with BCH) and this could also drive the market down. Profit taking, pump and dump, and also the opening of bitcoin futures at CME & CBOE give new opportunities for hedge funds to play it. A lot of whale investors with billions dollars of money come to this sector. All of these have contribution to the market and give domino effects & panic selling. I guess we will see a lot of volatilities like this in 2018..... so take a deep breath & continue to be rational.
That could certainly have been part of it, the hack and selling of the ill gotten gains. Although a lot more money was coming onto the markets than just the amount stolen from Youbit, which makes me think it was a combination of things, with a lot of manipulation. :)
Indeed great analysis...
Totally agree, there are few mega-whales that doing with the market whatever they want...
This is why I switch to HODL, you can't predict anything... It is less about technology, more about their games.
Yes - the futures market and extensive visibility has brought in the big dogs. Sometimes they play hard. They will weed out the dump money entering the market. This will be a good think in the long term.
@jrcornel definitely multiple problems all adding to the crash but here is a quick recap; youbit hacked, etherdelta hacked, coinbase insider trading, bitcoin futures, net neutrality, new tax plan, charlie lee selling all his ltc, and i'm sure there is more!
Christmas?
But seriously, one more round and get out? Will it go slower or faster this time? I'm betting on LTC, EOS and maybe BitShares, Bitcoin Cash and Dash...
Very interesting. I know people who almost invested when it was 40$ a pop. Oh how rich they'd be now!
Spot on - it's also worth pointing out how SMALL the crypto market actually is in terms of market capitalization - it's a pittance compared to the figures some of the world's largest financial players operate in terms of.