Reasons for Bitcoin Price Drop
Why Bitcoin Prices have been dropping this month!
Over the Month of February, Bitcoin prices have been continuously dropping from a high of $10,166 to a low of $5,873 on the 6th of February. We have retraced a bit from the fall, currently at about $8,750 at the time of writing. There is still a lot of weakness in the market the way I see it.
The point of this article is to understand some of the reasons behind the fall and analyse their impact over the future trend of prices as well, while clearing some misconceptions on the matter.
Tether & Bitfinex Subpeona
Towards the end of January, various news agencies from across the world started reporting a story about Tether & Bitfinex being subpeonad by the US Regulatory agency- US Commodity Futures Trading Commission.
The U.S. Commodity Futures Trading Commission sent subpoenas on Dec. 6 to crypto-currency exchange Bitfinex and Tether, a company that issues a widely traded coin called USDT which it claims is pegged to the dollar. Now Tether is a widely used token used by various alt-coin exchanges around the world to allow traders to value cryptocurrencies with a stable coin based on the US Dollar. Using Tether, these exchanges don't have to rely on the existing banking channels to accept customer deposits. Customers can purchase tether elsewhere, transfer them to the exchange and trade it like they would trade with the real fiat currency.
There has been a lot of rumour on the legitimacy of the claims made by Tether that each Tether token is actually backed by equivalent amount of US Dollars held in their Banks thereby creating a pegged value. It all started with an internet figure called Bitfinexed who started questioning whether what they say is true considering the fact that no real audit on their accounts have been conducted & made public. There is also a rumour that Bitfinex was printing Tether without really having equivalent amount of Fiat currency in their bank accounts and using it to drive up the prices of Bitcoin over the last year.
The news of Subpeonas created a lot of panic in the market, leading to a sell-off & depression in the prices of Bitcoin.
Statement from Indian Finance Minister
Keeping up with it's traditions, the Indian Government presented it's annual budget for the year 2018-19 in the Parliament on the 1st of February. While presenting the budget, the Finance Minister, Mr. Arun Jaitley, replying to a question on the matter of crytocurrencies said "The government does not consider cryptocurrencies as legal tender or coin and will take all measures to eliminate use of these cryptoassets in financing illegitimate activities".
The problem was when Indian investors started panicking on the statement made by their Finance Minister without really understanding the true meaning behind it. This panic led to a widespread sell-off at various Indian Bitcoin Exchanges creating a downward pressure on the prices of bitcoin.
The Finance Minister never really declared cryptocurrencies to be lawful, what they meant was that they aren't accepted as legal tender, which most of the countries in the world claim. The second part of the statement meant that they would crackdown on it's use to finance illegitimate activites like terrorism, money laundering & Drug trades, which is something every country in the world would do, even Japan for that matter which has accepted it as a legal tender for making payments.
Until the Indian Government comes out with a clear statement on cryptocurrencies, which it says it will by the end of March, Indian Investors will be vary about it prospects and may be using any rise to sell of their bitcoin holdings.
Notices from Indian Tax Authorities
Adding on to the Statement from the Indian Finance Minister during the budget session, the Indian Tax authorities have started sending out notices to investors who haven't declared their crypto investments in their tax-filings to the government.
According to a source in the Indian Tax Department, almost 1,00,000 notices have been sent to investors to make them declare profits from investments in cryptocurrencies as it feels that they should be taxed considering the speculative income these activities have generated for them.
There is a rumour on the ground that many investors who haven't been issued notices either have started selling their bitcoin holdings in the black market for cash to avoid any tax liabilities and record of transactions. The influx of this supply seems to have created a downward pressure in the prices.
Banks Banning Cryptocurrency purchases through Credit Cards
In another blow to cryptocurrency investors, several banks in the US started banning the use of their credit cards for purchasing cryptocurrencies.
This had been triggered U.S. banks like Bank Of America, Citigroup, JP Morgan, Capital One and Discover banned their customers from purchasing cryptocurrencies using their credit cards. Banks have always been against the concept of cryptocurrencies and only now have they started adopting the blockchain technology for use in their operations.
Banks have used excuses such as higher volatility and money laundering to play down the concept of cryptocurrency, particularly Bitcoin. In the U.K., some institutions have already made headlines by not approving mortgages for those customers who have made their capital gain by investing in Bitcoin and other Altcoins.
Perhaps, Banks seem to be limiting their exposure to Bitcoin which they feel is worthless and speculative at best with no future. This move from Banks has resulted in the fall of cryptocurrencies as investors now had to fund their trading accounts through traditional wire transfers and from their own funds instead of borrowing from banks using credit cards.
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