Bitcoin Is Falling, This Is Why

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7 Reasons Why Is Bitcoin Dropping? Important Factors

Bitcoin is the world’s first digital currency and it has been very popular over the last years! A lot of people have made large profits by buying BTC for a low price and then selling it for a high price. Bitcoin has been one of the best investments you could have made in the last 5 years. But why is Bitcoin dropping? I am sure you already heard about the recent BTC price fall that followed the theft of more than $30 million worth of digital tokens from a cryptocurrency exchange. So, unsurprisingly, the BTC value has now fallen again.

If you would like to learn more about Bitcoin as one of the biggest cryptocurrencies ever, check our detailed article. Otherwise, keep reading to find out why BTC is falling.

Why is Bitcoin Valuable?

Bitcoin is a different kind of beast that can be difficult for people to understand. New things usually are. And while first cryptocurrency is nearly nine years old, it represents a completely new type of asset. It offers an efficient means of transferring money over the internet and is controlled by a decentralized network with a transparent set of rules, thus presenting an alternative to central bank controlled fiat money. There has been a lot of talk about how to price Bitcoin.

Fundamentally, Bitcoins derive their value just as anything else does: because people want them. Like any other currency, BTC follows the basic rules of supply and demand. Currencies have always been useful tools to make trade easier, enabling holders to convert goods into a widely tradable commodity through sale, then use the proceeds of that sale to purchase nearly anything they wish.

While fiat currencies derive value from the governments that back them, currencies like gold are valuable by themselves. Currently, BTC isn’t like other currencies in that it is not universally accepted. There are limits on what it can be used for. While not backed by any government or valuable by themselves, digital coins are still used as a store of value, a placeholder for goods and services that can be exchanged, as with traditional currencies.

Bitcoin derives its unique value from the fact that despite its lack of official backing or wide acceptance, it has generated an ecosystem in which many people are willing to trade and accept it. In fact, some perceive Bitcoin to be more valuable, or more useful, than other currencies in that it is a better option for certain purposes, such as seamless digital transfers and use across borders. Also, because there is a cap set on the total number of coins that will ever exist, the currency cannot be devalued through inflation as others can.

Censorship Resistance

Another benefit of Bitcoin is known as “censorship resistance”. This refers to its ability to be used for transactions that could normally be censored by other payment networks. Using the most powerful computer in the world, it would take .065 billion billion years to crack a person’s private key. And it is all due to cryptography that defends cryptocurrency users from even governments and large companies.

The Bitcoin network is the most powerful computer in the world because it pays so-called “miners” in BTC to lend computing power towards securing the network. As the price of BTC increases relative to fiat currencies, miners receive higher fees, incenting them to devote yet more computer power, which makes the network more powerful and creates a positive feedback loop.

Because the vast majority of Bitcoin users believe the network is only valuable if it remains decentralized, a 51% attack would likely mean that as soon as an attacker gained control of 51% of the network, it’s value would drop to zero.

More significantly, if you had 51% of the hashpower, you could stand to make

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$15–20M per day mining honestly. So, even if you have dishonest ambitions, it’s more profitable to just play by the rules.

This combination of the defender’s advantage and the positive feedback loop in mining creates a property called censorship resistance.

In other words, anyone who wants to steal your cryptocurrency from your wallet by cracking your private key or to perform a 51% attack would have to bring such an enormous amount of computing power to bear that it would cost far more to steal the BTC than to simply buy it.

Censorship-resistant wealth storage in general, and Bitcoin specifically, may sound like a strange libertarian or anarchist perspective if you’ve grown up in a stable country. But with all of the crazy things going on in the world, the demand for censorship-resistant wealth storage is high and growing. Current markets which exist largely because of their censorship resistant properties include the gold market (est. $6 trillion) and the offshore banking industry (est. $20 trillion).

Digital Gold

While payments are the first thing that people think of for Bitcoin, the reason that most people buy today is its utility as “digital gold”.

People are attracted to an asset that is provably scarce, nearly impossible to seize or censor, and part of a decentralized and permission-less network that anyone can participate in.

As a venture firm dedicated to the blockchain and crypto ecosystem, we’re constantly collecting data points from around the world. But one of my favorite anecdotes is a doctor in Brazil who has converted his medical practice one day a week into a “Bitcoin consultancy,” where all he does is help doctors and other people get set up with Bitcoin.

The main reason they want to buy? They’re terrified of wealth confiscation in light of a burgeoning public deficit. To be clear, they’re not rushing to put all of their assets into Bitcoin, but it’s a piece of a defensive strategy for some Brazilians to retain their hard-earned wealth.

What Determines the Price of Bitcoin?

The price of BTC is not the same as its value. Price is determined by the market in which it trades: by means of supply and demand. This is the same way the price of your secondhand car, a bag of apples in the supermarket, an ounce of gold and just about everything else is determined.

Just like most currencies, the cryptocurrency price changes every day. The only difference is that the price of BTC changes on a much greater scale than local currencies. It is the ongoing interaction between buyers and sellers trading with each other that determines the specific price of BTC (and everything else).

Bitcoin’s value is based on how valuable the market (the people buying and selling BTC) thinks it is. Think about some of the more physical things you can currently invest in, such as Gold. The price of Gold depends on its supply and demand. For example, when a new Goldmine is discovered, the price drops. This is because more Gold becomes available and so it is no longer as rare. So the rarer Bitcoin is, the higher BTC price predictions are.

So when determining a price, we must also consider the amount that buyers are currently willing to pay for the future value of a specific item. In other words, if the market believes the price of something – like property, a certain stock, or BTC – will increase in the future, they are more likely to pay more for it now.

The example of Gold is similar to how Bitcoin’s price changes. However, the price of cryptocurrency usually changes because of the news that is published about it. Here’s how it works:

  • When there is bad news published about Bitcoin, there are a lot more people selling than buying BTC. These people sell their cryptocurrency for lower prices than the current value so that they can sell it quickly. This causes the price to drop.
  • When there is good news about crypto, there are more people buying BTC than there are people selling it. These people buy cryptocurrency for higher prices than the current values so that they can buy it quickly. This causes the price to rise.

When Bitcoin was created by Satoshi Nakamoto, he set a limit for how many coins can be made — 21 million. This means that for as long as Bitcoin exists, there can only ever be 21 million — no more. So, if the popularity of BTC increases, so should the value.

Why Does the Price Change so Often?

This is called volatility, and it’s not only the BTC exchange rate that seems to change from day to day. The price of many things, such as stocks, currencies, oil and many other products can be quite volatile: moving up and down a lot against a base currency (such as the US dollar).

The total cryptocurrency market is still relatively small when compared to other industries. It doesn’t take significant amounts of money to move the market price up or down, thus, the price of a BTC is still somewhat volatile.

The price is up one day, down the next day… it has a history of being difficult to predict in the short term. Yet, a lot of investors like this. With prices that fluctuate regularly, investors can often buy BTC at a low price and then sell it at a much higher price.

There are other investors, though, that buy cryptocurrency to hold it for the long term — this is how a lot of people got rich! Some investors bought BTC over 5 years ago for super low prices (under $100) and held it until last year when it reached $10,000-20,000!

Why Is Bitcoin Falling?

Why is Bitcoin going down? Well, as mentioned earlier, the BTC price is always up and down and there are several reasons for that. However, a price crash in BTC or any other cryptocurrency is nothing new. “Digital gold” dies and comes back to life on a regular basis.

A whole slew of bad news has led to a huge downturn in the crypto economy. The market was shaken a few days ago as news emerged that more than $20 million in BTC was seized from illegal vendors on the Darknet by the Department of Justice (DOJ). Agents claim to have seized cryptocurrency mining devices, weapons, narcotics, $3.6 million in US currency and more than 2,000 BTC worth more than $20 million.

Another reason for the BTC price changes may also have been the most recent comments from Alibaba’s chairman Jack Ma advising traders to avoid trading in BTC. Speaking at a launch event for a new online-payment service for real-time cash transfers between Hong Kong and the Philippines, he said: “Technology itself isn’t the bubble, but Bitcoin likely is.”

Alongside this, the head of payments policy at Australia’s Reserve Bank – the equivalent of the Federal Reserve or the Bank of England – said cryptocurrencies’ strengths are also their weakness. In a speech delivered to Australian Business Economists, Tony Richards from the bank condemned Bitcoin’s transaction output, comparing the cryptocurrencies 4.5 transactions per second rate to Visa’s 65,000 transactions per second.

Even more, hackers managed to steal 35 billion won ($31.5 million) from South Korean exchange Bithumb this week, Reuters reports. The company has reacted by moving all of its users’ assets to “cold storage”, and placing a temporary block on all withdrawals and deposits. It isn’t yet clear who was behind the heist, but Bithumb assured affected customers that they would be refunded.

Some of the recent events might explain the current collapse:

  1. Bitcoin Cash Hard Fork

A hassle between the two groups of BCH communities (Bitcoin ABC and Bitcoin SV) led into the bonfire of the ideological debate. The hard fork finally took place on November 15, 2020, resulting in two competing chains Bitcoin ABC and Bitcoin SV. As a result, the value of BCH has suffered just as much as the rest and the hash rate war caused serious uncertainty in the market and this might be the reason for cryptocurrency market crash.

  1. Avoid Capital Gain Tax

It has been noticed that to avoid paying huge taxes, the investors are selling off their cryptocurrencies before April. People have recently realized that they are stuck with large tax bills and they are left with two options- either pay the tax or sell the cryptocurrency off. If the person is buying and selling the cryptocurrency in the same financial year, the individual would be taxed on short term capital gains which might be as much as 39% depending on the taxation bracket.

  1. Bitcoin Futures delay

Bakkt, a company owned by the New York Stock Exchange, recently announced their decision to postpone the launch of their highly anticipated Bitcoin Futures trading platform from December 2020 to until late January 2020.

  1. Google ban on cryptocurrency ads

Google has banned cryptocurrency ads, which might be one of the reasons for the fall. To justify its crypto ad ban, Google said that it was protecting its customers from fraudulent offerings, including but not limited to “initial coin offerings, cryptocurrency exchanges, cryptocurrency wallets, and cryptocurrency trading advice.”

However, starting in October Google allowed registered cryptocurrency exchanges to advertise on its Google AdWords platform, targeting the U.S. and Japanese audiences.

  1. Controversial Stablecoin

The U.S. Department of Justice (DoJ) has focused its investigation crypto market manipulation on whether or not Tether (USDT) was used to artificially inflate Bitcoin (BTC) prices during last year’s momentous rally. In late October, Tether redeemed and destroyed 500 million USDT from its treasury wallet; the action provoked yet further controversy given Tether’s recent loss of its U.S. dollar peg.

  1. Unlicensed securities of some ICOs

The first is the SEC’s announcement on Friday that the operators of two “Initial Coin Offerings” (ICOs) broke the law by selling unlicensed securities, and must pay fines and restitution. This development might be enough to spook some crypto investors, but it hardly comes as a surprise. Anyone paying attention to the regulatory space knew this was coming, and so much of the fallout should have been priced into crypto token prices already.

  1. GPUhardware sales declines

Crypto investors got panicked by bad news from chip-makers Nvidia and Advanced Micro Devices, which recently reported steep sales declines for cryptocurrency equipment. The sales declines suggest interest in crypto has waned and is unlikely to pick up anytime soon. This could explain the chill on crypto asset prices.

Long-term Factors Causing Bitcoin’s Price to Decrease?

Although many blame this crash on recent news, there have been several longer-term trends that you should be aware of:

  • Bitcoin’s monthly trading volume has been decreasing for the past 4 months (on specific days it’s had large spikes, but using the monthly totals it’s been decreasing). Many consider low trading volume to be an indicator that price will also decrease.
  • Interest in cryptocurrency on Google Trends has been decreasing since early February 2020 (this is likely a contributor to the decreasing trading volume). Is there a relationship between interest in Bitcoin & its fiat price?
  • Very speculative: There have been several posts suggesting that Bitcoin follows an up or down trend between the 6th of each month, with many claiming that June 6th, 2020 was the point when BTC may begin going up in value again. Others have posted that because Bitcoin has started going down now, after June 6th, it will continue to go down until July 6th,2020, and may then either start going up again or continue downwards.

Let’s highlight the biggest Bitcoin drops through its history:

  • In 2020, the price crashed 93% in five months.
  • In 2020, the price crashed 57%
  • In 2020, the price dropped 87% and lasted 411 days, ending in January of 2020.
  • In 2020, the price crashed 59%

Some experts predict Bitcoin could continue to fall, with many suggesting the biggest cryptocurrency on the market could have found a new bottom. Previously, the bottom was thought to be at $6,100, but BTC dropped to $5,800 over the weekend, suggesting a new bottom could be about to hit the digital currency.

Summing up

2020 hasn’t been a particularly good year for crypto holders. And the truth is no one really knows how long it’s going to last. If more countries create regulations/laws for cryptocurrency, more bad news will be published. This means we may see cryptocurrency crashing again. Countries such as South Korea, Japan, China, France and the United States all want to create new regulations.

Why the Bitcoin Price Is Falling This Week

By David Zeiler , Associate Editor , Money Morning • @DavidGZeiler • July 14, 2020

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The Bitcoin price is falling again, zapped by the one-two-punch of an overall decline in cryptocurrency prices and a looming deadline in the long-running Bitcoin civil war.

As of midday Friday (July 14), the price of Bitcoin was hovering near $2,200, according to the CoinDesk Bitcoin Price Index. That’s a 7.4% drop over the past day and almost 15% on the week. The Bitcoin price has shed 27% from the June 11 all-time high of $3,025.

And Bitcoin wasn’t the only cryptocurrency taking a hit this week. The No. 2 digital currency, Ethereum, has plunged 33% over the past week to below $200. It’s now more than 50% below its mid-June high of just over $400.

Many other cryptocurrencies, including several launched via initial coin offerings (ICOs) over the past few months, are down 50% or more since mid-June.

The overall decline in cryptocurrencies is one reason the Bitcoin price is falling. It’s also become somewhat of a feedback loop – the falling Bitcoin price also helps pull down the prices of other cryptocurrencies.

Frankly, this large-scale pullback should have been expected.

Just about every significant cryptocurrency experienced huge gains through the first five months of this year. Bitcoin tripled in price, and the Ethereum price was up as much as 5,000%. Ripple was up 6,000% at one point in mid-May.

Any asset that shoots up that far that fast is bound to have some sort of crash. It doesn’t mean cryptocurrencies are doomed, but a lot of froth needs to be blown off.

And even with the recent declines, cryptocurrencies have big gains on the year. The price of Bitcoin is up about 125% year to date. Ethereum is still up more than 2,000%.

That suggests cryptocurrency prices could continue falling in the days ahead.

But the deflating price bubble is only half the story.

Bitcoin’s internal debate over how best to scale the cryptocurrency is coming up on a deadline in two weeks that will either resolve the issue or tear the community in half…

Why the Bitcoin Price Faces Strong Headwinds Now

Bitcoin is at a crossroads now. The number of daily transactions has grown to the point where the network has reached capacity.

Unless something is done soon, transactions suffer from longer and longer delays. Users can prioritize their transaction by choosing to pay a higher fee to the Bitcoin miners, but that will result in escalating fees. Before long, Bitcoin’s costs would rise to the point where using the digital currency would become impractical.

Nearly everyone in the Bitcoin community agrees some sort of scaling solution is needed. But they vehemently disagree on which path is the right one. And the growing uncertainty over how that debate gets resolved has put increasing pressure on the Bitcoin price.

One group wants to increase the size of each block from the current one megabyte to two megabytes (some would like even bigger blocks). That would double the number of transactions the network could process, but would dramatically increase the size of the blockchain – the digital ledger that records and verifies all Bitcoin transactions.

The other side prefers an adjustment to the code that would squeeze more transactions into each block while keeping the block size at one megabyte. Called “Segregated Witness,” or “SegWit” for short, this solution would only increase network capacity by about 30%.

The pros and cons of both solutions can be debated (and have been, endlessly), but the bigger problem is that both sides have dug in their heels over the past two years. Each side believes its way is the only way forward and the other side is evil – a true Bitcoin civil war.

But a few months ago, frustrated peacemakers came up with what they’d hoped would be a compromise…

Top 10 Reasons Why Bitcoin Is Falling Down

Interest per week

Interest per year

Bitcoin (BTC), despite recently surging by 10 percent, still remains in the doldrums with its price being nearly 75 percent below last year’s ATH. On Nov. 25, Bitcoin recorded a 36 percent weekly drop (the second worst in its entire ten-year history).

Numerous theories are floating around the infamous Bitcoin crash. U.Today has picked up some of the most relevant ones.

The frontloaded success of cryptocurrency mining

During Bitcoin’s early days, your ordinary computer would be suitable for mining Bitcoin, but then it turned into a massive international business with full-fledged mining farms and ASIC manufacturers engaging in a fiery competition with each other.

Eventually, the Bitcoin mining craze reached its boiling point in the first half of 2020 when profitability started to decline due to a double-whammy of falling prices and increasing cryptocurrency mining difficulty. AMD and Nvidia are ditching the then-lucrative business niche while miners are selling off their Bitcoins in droves to cover their losses.

Regulatory roadblocks

The regulatory uncertainty around Bitcoin remains one of the main factors that hinder its growth. Many suggested that the SEC’s crackdown on two ICOs triggered a prolonging bearish trend that finally broke Bitcoin’s multi-week streak of stability. During his recent interview, Circle CEO Jeremy Allaire said that there is a need for more regulatory clarity when it comes to distinguishing between securities and commodities in the cryptocurrency market.

Infighting within the Bitcoin community
The everlasting scalability debate created a great schism in the Bitcoin community. First, there was a Bitcoin Cash hard fork. This November, the division inside the Bitcoin Cash community also came to a head, which subsequently resulted in the creation of yet another hard fork – Bitcoin SV. The Bitcoin community infighting is obviously a disheartening sign for cryptocurrency investors who might be tempted to jump ship.

FOMO turned into FUD

According to Oxford Capital, the unprecedented rise of Bitcoin was largely fueled by the populist movement. During their Thanksgiving dinners, numerous people would hear mesmerizing stories about how much money you can make in a snap because of the volatile asset class. Once the Bitcoin price started freefalling, the new investors found themselves in a panic mode, and the cryptocurrency massive sell-off intensified. Nevertheless, the number of ID-verified users has almost doubled in the market this year (from 18 to 35 mln).

Numerous technical indicators point to the fact that Bitcoin is massively oversold (after being equally overbought last December). That essentially means that the real market value of the flagship cryptocurrency is much higher, and the Bitcoin price could rise in the nearest future.

Rampant market manipulations

Speaking of cryptocurrency’s nouveau riche, it is worth mentioning that just over 1,600 investors (commonly known as ‘cryptocurrency whales’) control almost a third of the whole cryptocurrency market. Hence, these powerful industry players can easily tip the scale in order to manipulate the price of Bitcoin.

For instance, they have the power to tank Bitcoin price by fabricating a sell-off. Shortly after that, Bitcoin becomes a powder keg waiting to explode since many FUD-driven investors are to most likely follow suit.

No institutional money

The launch of CBOE and CBF Bitcoin futures became the driving factor behind Bitcoin’s bull run. There were high hopes that institutional investors would dive into the nascent industry but that wasn’t the case. Back in July, the Bitcoin price experienced a short-term pullback when there was mounting anticipation for the Bitcoin ETF approval. However, the Winklevoss brothers failed to get the green light from the SEC to launch their Bitcoin ETF.

However, the good thing about 2020 is that major institutional players in the likes of Fidelity are finally tossing their hats into the cryptocurrency ring. Earlier, Wall Street permabull Mike Novogratz predicted that 2020 will be the year of institutional money falling right into Bitcoin’s lap. Goldman Sachs and Coinbase already offer custody solutions for Bitcoin investors.

Bakkt, the ICE-backed cryptocurrency exchange, is expected to launch its Bitcoin futures product on Jan. 24, 2020, which is supposed to be an icebreaker when it comes to institutional involvement.

The ‘Blockchain over Bitcoin’ narrative

Mainstream media outlets have seemingly adopted a narrative that only Blockchain, the disruptive technology that made its debut in Satoshi’s white paper, will survive. Bitcoin is a mirage, bubble, scam, rat poison squared – you name it (the same goes for other top cryptocurrencies).

While Blockchain technology is also going through its ‘growing pains’ stage, it already has plenty of real-life use cases that are changing the face of multibillion-dollar industries, including:

food chain supply.

Bitcoin failed to break into the mainstream as a viable replacement for fiat money, and the lack of real-life adoption is very discouraging for those who want to invest in the currency.

News about the recent stock market crash

This November, Bitcoin’s crash coincided with the equity crash (which marked the end of a ten-year-long bull run). That gave ground to plenty of gloomy predictions about the looming economic crisis. Earlier, U.Today reported about an increasing correlation between Bitcoin and stocks – these two markets move in tandem, at least in the short-term.

US investors avoiding paying capital gain taxes

Lastly, there is also a theory that US investors could be simply avoiding paying capital gain taxes. Those who made mammoth-sized profits in 2020 when Bitcoin reached its ATH went on a sell-off spree before filing their April taxes the next year. The situation is quite absurd: Bitcoin investors might not have enough coins to pay taxes for 2020 in the middle of the cryptocurrency winter. It has been estimated that cryptocurrency investors could owe the IRS as much as $25 bln.

Mainstream media coverage

Lastly, Clovr research shows that mainstream media outlets typically cover Bitcoin more when the price goes up. For instance, Bitcoin reached its media peak during its sudden downfall right after reaching the ATH of almost $20,000. There was a spike in coverage during every Bitcoin drop that followed, which means that mainstream news sites profit from amplifying the FUD. Notably, conservative outlets have the highest negative to positive ratio, with 88.7 percent of all pieces putting Bitcoin’s worst days in the limelight.

Will the BTC price recover?

Bitcoin’s price has been falling steadily since reaching its December peak, and some experts predict that this negative trend will most probably continue well into 2020. For instance, Bloomberg’s Mike McGlone believes that the king of cryptocurrencies could reach its bottom at the $1,500.

Nevertheless, despite the dramatic rout, Bitcoin remains the best performing asset of the last five years, trumping stocks, bonds, and fiat currencies. As the market is maturing, there is a good reason to believe that Bitcoin is far from being dead, and people’s expectations are simply too high.

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