Why Bitcoin is Falling

Why Bitcoin is Falling

The Bitcoin price has taken a heavy hit today. Without any real big events that can explain the sudden Bitcoin-price drop of more than 15%, we will still try and give you a few pointers that may have caused the shift.

The Bitcoin value rose from being stable around 150 USD per Bitcoin this summer, to more than 1200 USD per Bitcoin within just a few months. The largest increase happened during October and November. This “pump” or “hype” (I would rather see a more sustainable price growth – not a hockey stick) was mainly caused by BTC China and the expanding interest of Bitcoins in China.

But why is Bitcoin falling then?

As we have written in our earlier posts, a lot has happened to the Bitcoin-field in the past weeks. There has been a shift in the market going from “Bitcoin is very bullish and can grow infinite” to a state of fear of what governments might do to Bitcoin. I believe that this shift has happened due to the climate change in China. As Jesus Cripto writes:

BTC China has, after 3 successful months, has decided to resume trading fees.  For a few weeks now, because of 0% trading fees, BTC China has consistently been the highest volume BTC exchange.  Trading fees will be 0.3%, the announcement reads:

Dear BTC China valued customer: To stabilize the recent turbulent Bitcoin market and minimize potential market manipulation, BTC China will end the 0% trading fee promotion, effective immediately, and revert to the 0.3% trading fee. We deeply apologize for the sudden change. BTC China, December 16, 2013

Since the People’s Bank of China “banned” real-life merchants and banks from handling Bitcoin, Baidu’s Jiasule has stopped accepting Bitcoin and some argued that Bitcoin’s first Chinese bubble had popped. Some may have noticed that BTC China requires ID or Passport Number now for all its users as well, this is another side effect of China’s bank’s statement.

And as Blowstamps tells us:

Anyone who lives life watching bitcoin market charts woke up Monday with a kick to the groin.  Within a single hour the price of 1BTC crashed to below $800, and continued down to below $700 a few hours after that.  In the wee-hours of the morning (Eastern time) Monday, two messages appeared on a Chinese micro-blogging site.  The messages purported to be from CEOs of payment services claiming that their companies would not be allowed to conduct transactions with any bitcoin exchange.  Almost simultaneously the price of bitcoin plunged, and the accounts that posted the messages were deleted, leading many to believe it was an orchestrated manipulation of the price.  However, a few hours later Coindesk reported that a source close to the Peoples Bank of China said that the bank met with the top third-party payment companies, and that, “PBOC, in no uncertain terms, directed third-party payment companies not to do business with bitcoin exchanges in China.”

In the midst of the early morning sell-off, BTC China, the nation’s largest bitcoin exchange, abruptly ended its 0% trading fee promotion, claiming it was “to stabilize the recent turbulent bitcoin market and minimize potential market manipulation.”  A sudden change in fee structure lead many more to believe that something big, and negative, was going on in China regarding bitcoin, feeding the selling frenzy further.

This Sina post explains (direct translate from Google Translate):

“The central bank regulations third party payment institution shall not provide hosting bitcoin trading site for the trading business.” Yesterday afternoon, the central bank called third-party payment companies meeting revealed the news.

“First Financial Daily” reporters learned exclusively, December 5 issued “on guard against the risk of Bitcoin notice” (the “Notice”) Following the central bank again yesterday, “attack”, interviews with more than 10 third-party payment companies relevant person in charge, it may not be explicitly requested to Bitcoin, Wright credits (LTC) and other trading sites offer payment and settlement business.

In less than two weeks time, the central bank even out “two trick” to prevent the risk of Bitcoin, and convey the spirit of the meeting is to be interpreted as “drastic” Many Bitcoin insiders.

Third-party payment “three line”

A large third-party payment company, told reporters that the participants who, yesterday morning, more than 10 third-party payment companies convened by the central bank, in Beijing held a closed-door meeting. Such persons in an interview with this reporter revealed that the meeting, Deputy Director of the settlement payment was chaired by the Secretary golden week the central bank, every company has sent 1 to 2 participants stakeholders.

“Justice Week at the beginning of the meeting made it clear that the meeting was not convened to discuss whether the companies about Bitcoin-related businesses can conduct, but to convey the attitude of senior central bank, which may not be the first third-party payment companies to bitcoin, Wright currency and other trading sites provide payment and settlement services; Secondly, for payment institutions business cooperation has occurred should be lifted, the stock of money at the latest to complete the withdrawal before the Spring Festival, the new payment services may not occur; Third, strict implementation of the December 5 the central bank issued a “notice”. “these third-party payment companies told this reporter.

There is probably a lot of discussions about how to regulate Bitcoin going on behind closed doors, and some are probably even advocating for a full ban.

There is a lot of fear in the market of what governments might end up doing with cryptocurrencies which leads me to the next question:

Can governments ban Bitcoin and cryptocurrencies?

Countries may be able to ban the use of Bitcoin and cryptocurrencies (by making it illegal to use them), but this will lead to two things:

1. A massive black market that stays unregulated and causes damage to the countries’ economies (lost taxes so on)
2. An advantage to other governments that make Bitcoin legal and finds a way to regulate it that fits both the Bitcoin-community and its nation

I do not believe that it is very likely that we see any big nation completely ban the use of cryptocurrencies. On the other hand I am sure that we will see governments trying to regulate the different cryptocurrency markets, including Bitcoin.

I would like to show you a typical graph of what happens with bubbles and where I think we are at the current stage (I do believe we are in a present bubble, yes):

Bitcoin Bubble Bursting?

Bitcoin Bubble Bursting?

In this fast paced market I believe we will see the bottom of the Bitcoin price in the end of January, then it will continue the increase to somewhere around 600 to 1200 USD before peaking at around 2000 USD in the spring of 2014 (IF there is no big negative news regarding governments “banning” cryptocurrencies). Even though China has warned banks about the use of Bitcoins, they have not banned the use of Bitcoins. However, there could be reasons to believe that such a thing could happen. Right now it is the fear that drives the market.

We have also witnessed that other financial institutions are trying to create similar digital currencies, but those are not anyway near to compete with Bitcoin at the current stage so I have therefor ruled them out as a reason for the current Bitcoin drop.

What do you believe of the future Bitcoin value?

This is a part of the Cryptocurrency Investment Club by CryptoCoinsNews.com.

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7 Responses

  1. bitbro

    Yes. Good article.

    I hope it keeps dropping. Would love to pick them up at $400 or less.
    Banks and government will keep trying to control/regulate cryptocurrencies.
    Will they succeed?
    What are they going to do? Turn off the internet?

  2. LV PARTNER

    Well, nice articles, thanks.

    I do agree with the conclusion regarding where we stand on the bubble pop, and with the fact that major banks are working on crypto currency might let us think its won t be banned in major countries as a means of payment, but more probably regulated (let’s say taxed) which is a lower risk.

    Indeed, if no major ban, BTC and LTC might performed a lots again in 2014, as more and more websites/companies will accept them, I heard Ebay accepted BTC to be sold via their services, etc. Some websites are also just happy to get an article on them saying they accept BTC (see Virgin CEO).

    Thus, I do believe crypto currencies have a bright future…at least some of them.

  3. Martin

    Hi, can you explain me in detail, what affect the price on BTC-e ? I understand the mechanic, like if there is strong demand and limited supply the price goes up. But how does it work on BTC-e? Because to me it looks like the website is setting the price itself. There are lowest and highest ask prices.

    Thanks

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