Since the start of 2017 the price of Bitcoin soared nearly 19,000%, grabbing and creating headlines across the world being the first decentralized immutable digital currency created after the 2008 financial crisis by a mysterious person or persons named Satoshi Nakamoto.
However, since Bitcoin made a high of $19,666.00 (may differ on different exchanges) price has been declining and this is currently causing some fear and panic as price has almost made a 50% correction at the time of writing this article (currently trading at $11,225.00).
Many want to know and don’t understand the reason for this decline in price?
- A major factor which may have contributed to the decrease in price of Bitcoin was the launch of the futures contracts on the Cboe and CME’s especially that of the CME’s as the contract size equated to 5 Bitcoins. At the time the CME’s futures where launched on December 17th 2017 Bitcoin peaked at $19,666.00 (varies based on different exchanges) and that was the ATH (all-time high) and since the launch the price of Bitcoin has been declining since. Why? Well when the futures was launched on the 17th December 2017, 1 short contract was worth $98,330.00 ($19,666.00 x 5). Therefore someone shorting Bitcoin with as an example say 10 contracts short, this short position would be worth $983,300 (based on the ATH), say 100 contracts would be worth $9,833,000 therefore this would drive the price of Bitcoin down if many took short positions on BTC. The CME’s allowed for spot position limits of 1000 contracts and a position accountability level of 5,000 contracts could be applied to positions in single months outside the spot month and in all months combined.
- For the near term the news that South Korea would ban anonymous cryptocurrency trading and the first of their regulations will kick off on January 30 is a major cause. The new restrictions will enforce a ban on the use of anonymous bank accounts to engage in crypto transactions, keep minors/underage investors and foreigners from opening accounts in any South Korean exchange and also apply a tax on digital currency exchanges. This has an effect on price as a large percentage of cryptocurrency trading occurs in Asia.
- South Korean government officials have reportedly been caught trading crypto currencies on insider information (insider trading). It was alleged they sold their cryptocurrency holdings and profited just before the regulators publicly announced cryptocurrency regulatory measures.
- Some have also stated that the Chinese Lunar New Year has also contributed to the decrease in price as some Chinese investors involved in Bitcoin may liquidate however this may have contributed to small portion of the pullback in price.
- Also as the cryptocurrency world has a lack of regulation there is mass manipulation via fake news which creates a mass amount of FUD (fear, uncertainty and doubt). This then creates a mass sell off due to inexperienced ‘traders’ and investors panic selling.
- Many Bitcoin enthusiasts will know big corrections in the price of Bitcoin is normal as it is a very volatile asset since its inception. Take for example on the 22nd December 2017 the low of the day for Bitcoin was $11,159.93 and the high of the day was $15,795.61 which is a price difference of $4,635.68 and a percentage change of 29.35% in a single day therefore a near 50% correction in about 30 days does not seem too unbelievable when it comes to Bitcoin.
We may see further downside to key levels at $9000 and $6000, however overall we believe Bitcoin will retest ATHs and even break above it.