Why did the price of bitcoin drop over Christmas?
In the space of just a few days before Christmas, bitcoin and other cryptocurrencies lost over 40%.
After months of huge price surges, on 22 December bitcoin suffered its biggest crash since 2013, dropping from US$13,000 down from its high of $20,000.
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It had left many wondering if this was the big bubble burst of Bitcoin, however prices have already started to come back up again.
Before today's news that South Korea could ban cryptocurrency, which has seen BTC drop back down again to around US$13,500, it had hit back to over US$16,000 on 27 December.
So what caused the big price crash? There is no singular cause, but there are a number of possible reasons.
1. Consumer buyers selling for cash at Christmas
This is believed to be the biggest reason bitcoin and all the big cryptocurrencies crashed in December. The increase in easy to use brokers such as Coinbase makes it possible for speculative buyers to break into the crypto space. It also means an increased number of people looking to make a quick buck rather than hanging onto bitcoin as a long-term investment.
At the moment, in most places, bitcoin and cryptocurrencies are difficult for consumers to use as a currency to buy goods in the real world, so traditional fiat currency becomes more useful in high spending periods such as holidays.
As a result, those same quick buck people were cashing out for fiat currency before Christmas to pay for the expensive holiday period.
2. Bitcoin Cash confusion
As Bitcoin Cash, the bitcoin fork which offers larger blocks for faster transactions, gained prominence in December, the traditional BTC began to take a hit. This was particularly big on 20 December when Coinbase added support for Bitcoin Cash causing a flurry of speculative buyers selling their BTC for BCH after seeing it as a "cheaper bitcoin" in the hope it would hit the heights of its BTC big brother.
However, that same shift which saw BTC get smashed and BCH rise so fast would have scared off more than a few buyers as they watched the volatility of cryptocurrencies right before their eyes.
The fact that Coinbase suspended trading of BCH for a day almost immediately after it launched it due to claims of insider trading, was also seen as a warning sign for potential buyers.
3. The growth of the altcoin
While Bitcoin and most other large cryptocurrencies took a big hit before Christmas, many smaller currencies saw a huge surge in growth as buyers who were originally attracted to the market through the bitcoin buzz began to discover alternatives. RaiBlocks, which many believe has the potential to explode in 2018, was one of the biggest gainers over the period, with its price jumping over 5000% in the 30 days before Christmas day. Ripple has also seen big growth after it announced deals with American Express and other partners in Asia.
On top of established altcoins, there have been hundreds of ICOs popping up with businesses attempting to raise funds through Ethereum based tokens. These ICOs which are usually cleverly marketed and targeted with social media advertising have raised hundreds of millions of dollars in the past couple of months, money that previously would have been focused on bitcoin instead.
4. Market manipulation
With reports that almost 40% of the world's bitcoin owned by just 1000 people, as well as bitcoin futures now listed on Wall Street, means that bitcoin is now ripe for shorting. We may have seen big time investors selling at its peak on 18 December, watching it fall, and then buying those same coins back for 20-30% less a week later.
5. It's correcting itself for now
Over the past few months, bitcoin has had astronomical growth, rising from US$3,000 in August to over US$16,000 at its peak in mid December. In markets, this type of growth is almost impossible to maintain, and this current position of around US$15,000 could be where bitcoin's value sits – for now, anyway.
Bitcoin has had a major price spike before when its price hit $1000 towards the end of 2013. It took a little bit of a hit after the hacking of a bitcoin exchange Mt Gox but stayed relatively stable until 2017. A similar type of plateau could be what's happening now as bitcoin reaches its correct market value for now.