At the moment, most cryptocurrencies have increased in price. It follows that a decrease in price would be hard to predict. This article discusses the various factors that cause Why Bitcoin Price Drops? with explanations of each factor and its relation to Bitcoin.
Why Bitcoin Price Drops?
In recent weeks, Bitcoin prices have been on a steady decline. Many theories abound as to why this may be the case, but we’ll focus on three here.
Psychological Downturn
Bitcoin has had a wild start to 2017, with prices soaring from around $1,000 per coin to over $20,000 in just a few months. However, this meteoric rise appears to have come to an end recently, with prices dropping by around 20% in the past month. Some believe that this psychological downturn could be influencing buyers and sellers alike, depressing the value of Bitcoin in the process.
Volatility Unlike
Other currencies such as the US Dollar or Euro, Bitcoin is not backed by any physical assets. This means that its value can fluctuate wildly – often in response to minor events or changes in global market sentiment. As such, it can be difficult for some people to understand or trust Bitcoin as a form of investment. When people doubt the safety of their investments, it can lead them to sell their coins at a lower price – which then reduces demand and drives prices down even further.
Technical Issues
Bitcoin is a new currency – and as a result there are still many technical hurdles that need to be overcome. For example, the Bitcoin network is still relatively slow when compared to more traditional payment methods. As a result, it can be difficult for businesses that wish to accept Bitcoin payments to do so effectively. There’s also a lot of confusion around how they should (or shouldn’t) be taxed.
Lack of More Major Retailers
Acceptance by retailers is seen as another major barrier to mass-market acceptance. With the exception of a few companies such as Overstock, very few major retail chains currently accept Bitcoin payments. This means that users must go online before they can use Bitcoin at any major retail chain – which is quite inconvenient if you don’t have a smartphone with you or an internet connection.
Bitcoin Price Volatility
As the value of Bitcoin fluctuates, so does its usefulness as a payment option. Many consumers, especially those who purchase regular items and services on a regular basis, prefer security and predictability of pricing – i.e., knowing what they are paying before they make their purchase. With this in mind, it is no surprise that Bitcoin’s volatility is one of the major reasons why it isn’t more widely used to pay for everyday goods and services.
What is a Flash Crash?
A flash crash is a sudden, dramatic price drop in Bitcoin and other digital assets. It can happen for a number of reasons, but the most common causes are market manipulation and technical glitches. Here’s a look at some of the more common explanations for flash crashes:
- Market Manipulation: Some traders use techniques like spoofing (manipulating the prices of assets to make them look higher or lower than they really are) to artificially drive the price of Bitcoin down. This can cause a panic in the market, which can lead to a flash crash.
- Technical Glitches: Sometimes when there’s a lot of activity on the exchanges, technical glitches can occur that result in trades being processed incorrectly. This can send the prices plummeting suddenly.
- Fear-Driven Trading: When people are scared, they tend to sell assets indiscriminately in an attempt to get out before they lose everything. This drives down the prices of those assets, which can lead to a flash crash.
Potential Explanations for the Bitcoin Price Drops
There are many potential explanations for why the bitcoin price drops.
Some people might think that the drop in price is due to a lack of confidence in the bitcoin economy, as there have been reports of some large companies not wanting to accept bitcoins as payment. Others might believe that the recent crackdown on bitcoin exchanges in China is causing investors to sell their bitcoins, as this could lead to a decrease in liquidity. However, it is also possible that the fall in price is simply a result of market fluctuations and is not related to any specific event.
Conclusion
There are many possible explanations for why the bitcoin price drops, but we can narrow it down to a few main reasons. The first reason is political instability. When there are disagreements in the world trade or politics. It can lead to financial uncertainty and this will cause investors and traders to sell off assets such as bitcoin. For example, when Brexit happened in the UK there was a sharp drop in the value of bitcoin. Because people were unsure what would happen next.
