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Image: A man works on a laptop beneath the Bitcoin logo at the Consensus 2018 blockchain technology conference in New York City. REUTERS/Mike Segar

Why is Bitcoin Falling After Climbing so High?

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Image: A man works on a laptop beneath the Bitcoin logo at the Consensus 2018 blockchain technology conference in New York City. REUTERS/Mike Segar

Bitcoin’s price has fallen considerably since it skyrocketed to an astounding peak in December 2017.

The cryptocurrency underwent a value spike, but now sits at around one third of its highest point.

Has Bitcoin Crashed?

In December 2017, Bitcoin’s price saw astounding gains. Just as experts thought it wouldn’t climb any higher, it jumped upward by leaps and bounds. At its highest, the crypto peaked at about $20,000. That said, the digital currency’s latest value is around one third of that peak amount after suffering considerable crashes.

Though it isn’t easy to be able to blame any specific circumstances or events for these types of price plummets, experts and analysts have their theories. Many are attributing the latest Bitcoin nosedive to the publication of a new study.

Study Findings

The study in question looked into the 2017 Bitcoin price bubble. It indicated that the entire reason the bubble existed and continued to grow was due to market manipulation. Market manipulation has become a common practice in cryptocurrency investing. According to this study, it explained a considerable amount of the coin’s rapid value growth.

The study, titled “Is Bitcoin Really Un-Tethered?,” was conducted by University of Texas researchers. They examined the Bitfinex exchange as well as Tether, a virtual currency that was created by the owners of Bitfinex. The conclusion the researchers drew was that the massive December 2017 price spike was the result of platform manipulation leading to artificial inflation.

Study Impact

On the heels of the study’s publication, Bitcoin’s price fell to under $6,300. This was the lowest the coin’s value had fallen since November 2017. The research was published just after another price crash earlier in the same week. That freefall occurred after headlines showed hackers had successfully attacked South Korea’s Coinrail cryptocurrency exchange.

What Goes Up…

Bruno Peroni, investment platform Atlas Quantum’s director of investor relations, explained that these two recent events could have a considerable impact. He stated that such high profile situations occurring quite close together could lead to a significant change in a cryptocurrency’s future.

Bitcoin’s history has been far from smooth. It has a reputation for carrying investors along on a racing roller coaster ride.

“The chatter in popular communities and forums certainly suggests that the double-blow of a South Korean exchange being hacked, as well as a new probe from the CFTC into manipulation, are putting a lot of pressure on exchanges and are impacting the latest dip,” said Perioni.

Other Factors at Play

Perioni also pointed to other issues that may have played a role in the most recent Bitcoin price crash. Among them included reports published in the People’s Daily state-run newspaper in China. Those reports stated that China intended to continue its crackdown on illegal fundraising via cryptocurrency platforms.

Top blockchain advisor, Oliver Isaacs, also told the media that there were several different factors that helped lead to the current price situation at Bicoin.

“Herd Mentality”

Among the leading drivers of Bitcoin price growth in December 2017 occurred as the coin gained massive media attention. People who had never heard of a cryptocurrency suddenly found themselves looking into investing in them because of seemingly endless reports of the upward climbing prices.

“Herd mentality seems to play a big role in the cryptocurrency markets and sellers seem to be in control at the moment,” said Isaacs. “A corrective rally might bring the price back above $7,000, however technical analysis shows a strong recovery is unlikely in the short term.”

It’s Not Over

That said, despite the fact that Bitcoin may not be at the core of the next “get rich quick” scheme, many still feel that it is a viable investment over the longer term. Even Isaacs includes himself among analysts who feel “very optimistic” over the cryptocurrency’s longer term future. That said, he did caution that more solid regulatory systems will need to be implemented before it can be taken seriously as a legitimate form of value storage and a reliable financial transaction method.

Despite the short-term damage caused by news of the hack to Coinrail, some feel that it may bring about more positive results. The Blockbid exchange’s chief operating officer claims this type of headline may carry positive longer term effects.

“The Coinrail hack shows that the fast-paced, evolving world of cryptocurrency is continuing to hold strong appeal to fraudsters and hackers, which in turn grows the level of risk for the market,” said Blockbid COO David Sapper. That cryptocurrency exchange is based in Australia. “However, hacks on exchanges aren’t a new thing and prices of cryptocurrencies will recover as they have done so before,” Sapper added.

Even though analysts remain quite positive, they could do nothing but accept a revision of their optimistic Bitcoin price predictions from the start of 2018. One cryptocurrency expert panel recently dropped their own predictions for Bitcoin’s end of year price from $33,000 to only $14,638. While this still represents a significant growth, it is far from the explosive level seen last year and that many had believed would continue.

Note: The opinions expressed in this article are the author's own and do not necessarily reflect the view of Alvexo on the matter.