Why Bitcoin Crashed?
The value of Bitcoin went down by nearly 23% over the span of 2 days sparking mass panic.
Image Credit: Coindesk
Multiple articles have been written documenting the hysteria amongst the investors and to try to make sense of why the crash happened. These theories range from logical to downright conspiratorial.
So, we have combed the forums and compiled some of the more interesting theories for you. Let’s take a look at some of the more popular theories as to why the value of Bitcoin crashed.
Before we continue, there are two things that you need to understand:
- Bitcoin is like the gold standard of the cryptocurrencies, the value of every coin out there is linked to the value of Bitcoin. In simple English, if the value of Bitcoin drops then the value of most of these coins drop.
- The value of Bitcoin, as with any other currency is built on trust. As Dr Karl Kruszelnicki puts it: “The worth of all currencies from stone coins to Bitcoins is based on people trusting the transaction system.”
Note: We are not saying that these are the exact reasons why the value crashed, we are just compiling some theories, some of which are fairly outlandish.
Theory #1: It’s Christmas!
We have Christmas and New Year coming up which means that investors are going to sell some of their investments to get enough fiat cash to spend on gifts and other festivities. However, when any asset is sold off rapidly for liquid cash, it generally equates to a loss of trust.
This mass end-of-year selling of assets could be a reason as to why Bitcoin crashed.
Theory #2: Investing In Alt-Coins
A lot of new coins have entered the market which has enticed investors into investing in them. In order to do so, investors usually sell their Bitcoin to buy these new alt-coins. The reason why they do so is because of pure lottery. They want to be early investors in what could possibly become the next big cryptocurrency.
However, as we have seen before, a mass selling of an asset can lead to a loss of trust and since bitcoin is a gold standard, a crash in its price will lead a crash in all cryptocurrencies.
Theory #3: Coinbase Adding Bitcoin Cash
Coinbase is one of the largest cryptocurrency exchanges in the world and they recently added Bitcoin Cash to their roster:
Image Credit: Coinbase Twitter
Bitcoin Cash got a noticeable surge in its value since it got added on to the roster because more and more investors were buying it. However, as with other alt-coins, investors are selling off their bitcoins to buy more bitcoin cash. This once again causes the value of bitcoin to go down and that of the other coins to go down with it.
Theory #4: Market Manipulation
Now we enter the realms of insane conspiracy theories.
Bloomberg reported some time back that 40% of the Bitcoin market is owned by around 1000 people! These people are called “Bitcoin Whales”.
So the theory goes that what if these people got together and decided to bring the price of Bitcoin down?
The reason why this is profitable to them is that they can sell their Bitcoins at a higher price and when the market goes down, they can buy back more bitcoins for cheap.
Theory #5: Oldenburg-gate
Emil Oldenburg, the co-founder and CTO of bitcoin.com, publicly came out and announced that Bitcoin is “virtually useless” and that he is selling off all his bitcoins to buy more bitcoin cash.
What the forums are theorizing is that this was a planned attack by the Bitcoin Cash to create FUD (fear, uncertainty and doubt) around Bitcoin. After sufficient panic has been created they:
- Dumped enough of their Bitcoin to steadily decrease its price.
- Spammed the network with fake transactions to increase the transaction time even more.
All this resulted in a loss of trust from the public’s side and the value of Bitcoin dropped dramatically.
Now, it should be noted that there is little to no proof of this claim and it is just a “fan-theory” floating around the forum.
Theory #6: Market Correction
The most likely thing that happened is that the market was just correcting itself.
This definitely not the first time that this has happened. Everytime the value of Bitcoin spikes, it inevitably drops to correct itself. That is just how the market works, and that is how it has always worked. Now obviously there could be something else behind the scene, but for now, this appears to be most likely.
Since the value of Bitcoin has dropped, lots of people have “panic sold” their coins. The market is always going to fluctuate, it is an extremely volatile market (at least for now). The correct way to go about it is to educate oneself more on how the crypto-market works and to not give in to the hysteria. HODL all the way.
As someone on reddit pointed out: “If bitcoin corrects even by 90%, it will be still 10% up from beginning of this year.”