Bitcoin Price Falls 40% Lower - Losing More Than Its Value

February 06, 2018

Bitcoin Price Falls 40% Lower - Losing More Than Its Value

The Bitcoin price has dropped to around A$8,000 in the last few days, after almost hitting A$10,000 in the past month, and rising over 1,850% since 2015. All of this shows how volatile the currency is, prompting the question, what is affecting Bitcoin price?

Bitcoin price has enjoyed a strong surge in support over the past few months, but a sudden drop could spell disaster. As the cryptocurrency surged from a price just under $1,000 in January up to nearly $20,000 in December, it feels like the good times could continue well into the new year. If people start panicking, though, it would be tough to get the money out in time.

In case you didn’t know, all kinds of national currencies, such as US dollars, Euros, Japanese Yen are the actual monies/ currencies of various countries. So, generally speaking, Bitcoin is the first-ever money that is not controlled by any centralized entity, country, government or person.

Understanding The Functions Of Bitcoin?

Bitcoin has many uses and functions, but below are the salient ones to price fluctuations:

  • Payment Network – Bitcoin as a currency
  • Bitcoin Storage and Transfer – Bitcoin as a store of wealth and medium of value transmission
  • Exchange Rate – Bitcoin as a market instrument and commodity


How Does Bitcoin Payment Network Work?

Bitcoins are transacted on an ongoing basis and around the clock. At the time of writing an average of 62,000 Bitcoin transactions are conducted on a daily basis with an average volume of $50mil per day.

Of course, transactions over the Bitcoin network do not directly affect the market price of Bitcoin. In the sense that an active Bitcoin network reflects a healthy protocol enjoying plenty of usage and demand, there is an indirect influence. Only where bitcoins interface with other currencies – at exchanges – is there a direct impact on the price of Bitcoin.

Understanding Of Buying A Bitcoin

Every bitcoin exchange transaction that involves the purchasing of bitcoin via another currency, whether fiat or cryptocurrency, has the effect of pushing the bitcoin price upward. Because the bitcoins are changing hands – from the exchange’s wallet to the buyer’s wallet; there is an accompanying Bitcoin network transaction.

However; it is the exchange transaction that counts toward an up-tick in the Bitcoin exchange rate. Routine purchases are made daily, for various purposes, and typically increasing toward month-end through:

  • Company salaries
  • Wallet balance replenishment
  • Buy-and-Hold investment purchases
  • Incidental purchases destined for paying merchants
  • Purchases intended for transmission

Understanding The Selling Of Bitcoin

Every exchange transaction that involves the selling of bitcoin, i.e. exchanging for fiat or another cryptocurrency causes a downtick in the price of Bitcoin.

For example; someone working in the US, and paid in US Dollars, wants to send money to their family in Zambia. Instead of using the illustrious Western Union, they opt for the Bitcoin payment network. No queues, no forms to fill in, no proverbial rubber gloves, and no extortionate fee. They purchase bitcoin via an exchange that offers BTC/USD, send the bitcoins to a relative’s Bitcoin address, and 30 minutes later the relative in Zambia redeems them bitcoin for Kwacha via a local exchange offering BTC/ZMK.

Below are some more routine bitcoin sales that put a downward pressure on the Bitcoin price:

Merchants who accept Bitcoin
Miners “cashing out” to pay bills and expenses with fiat
Redemption of transmission bitcoin (as discussed above)
Partial or full conversion of bitcoin salaries to fiat

Factors Responsible For The Bitcoin Price Fluctuation



1. Regulations And Political Differences Of Different Governments

Each time various governments happen to release official statements about the regulation of digital currencies, the Bitcoin price is normally affected. Even if the actions of that government are not related to the virtual currencies directly, the impact will still be felt.

There is a very good example of this which can be derived from the Cyprus banking crisis, where the government seized funds. Hence; this prompted discussions on whether Cyprus should adopt Bitcoins as their new currency. Anytime there are restrictions on the use of bitcoins, their price changes drastically. However, because of the anonymous nature of the bitcoin transactions, most governments are proposing certain rules to eliminate this anonymity.

2. The Supply And Demand Of Bitcoin

Bitcoin price largely depends on the demand and supply. This means that high demand and low supply often leads to an increase in the price. Note that bitcoins have a controlled supply whereby the total number of bitcoins in circulation must never be more than 23 million. Due to the limited supply, there are speculations that the bitcoin price will continue to rise with time.


Bitcoin Price



3. Business Are Yet To Accept Bitcoin 

Given that bitcoins are not widely accepted as a means of transactions or payment,  businesses hesitate in accepting them.  Because most things still have to be paid for in respective currencies, many businesses often sell large portions of bitcoins so as to pay for their business expenses.

Hence; this is another primary reason Bitcoin value and price remains in a depressed state. Based on the number of bitcoins and the number of companies selling them at any given time, this can cause a panic sell, which could be the primary reason of bitcoin price crashing.

4. Manipulative Market

This is another major factor influencing the bitcoin price. For instance, traders can sometimes purchase huge chunks of bitcoins from the market so as to make the price to appear like it is rising before dumping them back to the market, hence making unheard-of profits from the same.

The media can also influence the bitcoin price significantly. Media hype can easily lead to an increase in the price, while negative news can lead to a decline in the price.


5. Influence Of Media

The media can also influence the bitcoin price significantly. Media hype can easily lead to an increase in the price, while negative news can lead to a decline in the price.

For instance, news about bankruptcy or hacks on bitcoin-related websites and services can cause panic and disruption among bitcoin users, leading to price dips. 



image source

February 06, 2018

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