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Bitcoin trading under $10,000 as cryptocurrency market plummets

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There are probably several factors behind the drop, but evidence points to the Tether troubles.

According to CoinMarketCap, bitcoin has shed its value to drop under US$10,000 at the time of writing.

After the last time it dropped under US$10,000, on 22 January, buyers were quick to jump on the seemingly undervalued coin.

But this time it comes amid an intensive and continuing market downturn. According to CoinMarketCap, only four of the top 100 coins by market cap are in the green and three of them (IGNIS, DigixDAO and SIRIN LABS token) are technically unusual outliers. Secondly, it comes at the same time as the Tether problems.

For those in the red, double-digit drops in the last 24 hours are the norm. Only a dozen-odd coins have gotten away with single digit drops so far.

Why is the market dropping?

There might be at least three key factors impacting the market currently.

  1. Facebook announced that it was banning all cryptocurrency and ICO advertisements. It's hard to see how this could directly impact the crypto markets to a measurable extent, although it might have contributed another element of uncertainty to exacerbate the current slump.
  2. South Korea's ban on anonymous trading, a constantly changing regulatory environment and uncertainty around tax laws, causing some traders to withdraw from the market until the situation becomes clearer.
  3. The Tether problem. Essentially some people have suggested that Tether might have just been printing crypto money to absorb bitcoin price drops, thereby artificially propping up the cryptocurrency market as a whole. The concern is that it might all be tumbling down in the near future.

What happened to bitcoin since its all-time highs?

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There are some signs indicating that the Tether problem might be one of the more powerful driving factors right now.

Firstly, Bloomberg recently reported news of a subpoena issued to Tether by the CFTC. The subpoena was actually issued back in December, but Bloomberg only revealed the news now. That Tether continued operating after a subpoena from the CFTC might actually be a point in its favour, but the timing of the news might have stirred the pot. The words "subpoena" and "Tether" in the same sentence could be enough to exacerbate the downswing.

Secondly and more significantly, Tether prices are also down. Despite being theoretically pegged to the US dollar, Tether still fluctuates and has historically gone in the opposite direction to the overall market. This might be because people have habitually converted their crypto holdings to USDT in order to ride out market downturns.

In recent weeks you'd consistently see Tether bump upwards whenever the rest of the market drops, and vice versa. Typically a downturn of this magnitude would have seen Tether riding slightly above US$1 (up to around US$1.02), but despite the bloodbath, it's still in the red and trudging along at around US$0.989.

It doesn't look like other stablecoins are being used as a price refuge either, based on a glance at the daily trade volume of stablecoins such as MakerDAO Dai, which suggests that a lot of crypto money is being cashed out to fiat, compared to previous downswings.

The takeaway

Based on the factors considered, it seems like this downturn has a disproportionate amount of people cashing out crypto for fiat, compared to previous downturns which saw more money staying in crypto. This might explain the severity of this downturn compared to previous ones. It might also indicate an unusually sluggish bounceback as people re-convert fiat to crypto.

The most likely factor at this point seems to be the uncertainty around Tether and a lack of confidence in the accurate valuation of cryptocurrencies.

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