Why did Bitcoin fall so far, so fast?

Still think Bitcoin should get an "A" rating? Then be sure to read the blockbuster whitepaper we released this week, "The Bitcoin Rating Controversy: Why We Give It a C+."

Or, just take one look at the market to see what happened after we first issued Bitcoin's C+ on Jan. 24: It plunged from the mid-$11,500 area to the low-$6,000s, or about 47%.

An equivalent dump in the Dow would clinch a crash of nearly 14,000 points. All between Jan. 24 and Feb. 6!

Why did Bitcoin fall so far, so fast?

There are several things going on all once, and it's impossible to tell exactly which are the dominant factors. But it's important to weed them out ...

First, competing cryptocurrencies are jumping into Bitcoin's space; and this is not a new phenomenon. In our just-released paper, we explain it this way:

"Looking back, we can see that Bitcoin's dominance fell from almost 90% at the beginning of 2017 to approximately 33% today.

"And looking ahead, our model tells us that this trend could continue. It is driven by more than just random speculation, investor psychology, regulatory threats or other extrinsic factors.

"It ties back to measurable deficiencies in Bitcoin's design and network performance that cannot be promptly overcome. Despite the influence of rumor and hype, at the end of the day, the investor marketplace picks up on these deficiencies and responds to them accordingly."

Second, what's even more troubling is that an extremely large percentage of Bitcoin usage (support) is fueled by speculators. We're left to wonder, therefore:

How loyal are these "supporters" in the midst of the ongoing crash? What happens if these speculators become convinced that altcoins are superior speculative investments? What impact does that have on the viability of Bitcoin?

All worrisome questions that we asked in our Bitcoin Rating whitepaper even as these realities were slamming the market!

Third, irrational exuberance always leads to irrational panic. And Bitcoin, along with other digital currencies, have clearly been a victim of both.

As a market goes parabolic, uninformed individuals push the market to nosebleed heights without truly understanding what they're buying into. They are the weak hands and, as such, they scare easily.

Then all you need are a few trigger events … and the boom morphs into bust.

In this case, triggers included random news like Facebook banning crypto ads and India reiterating that cryptocurrencies are not "a valid form of money."

They also included bigger events, such as the Coincheck hack, the largest in cryptocurrency history (in dollar terms), and Tether dilemma (we found this article quite revealing).

These rocked the entire marketplace for cryptocurrencies -- not just Bitcoin.

Should they be a long-term concern to an informed investor? No. They have no lasting impact on the fundamentals.

However, when weak hands dominate, it makes the market vulnerable to a severe crash. Make no mistake, this is how crowds behave in all markets and will continue to do so. You just need to be smarter than the crowd.

As a wise man once said, "Be fearful when others are greedy and greedy when others are fearful."

What about right now? It's a good time not to be fearful. More declines are always possible. But the best approach is to favor the cryptocurrencies with the highest Weiss Ratings.

Editor's note: There have been quite a few upgrades and downgrades since our first release. So if you you're a subscriber, be sure to log in for the current list. Not yet a subscriber? Then you can join here.) https://weisscryptocurrencyratings.com/