The price of Bitcoin has fallen to a new year low, with the majority of alt-coins following suit, resulting in a cryptocurrency total market capitalisation of $185 billion at the time of writing, its lowest value for twelve months.
Seven of the top ten ranked crypto assets have posted losses of more than 10% over the last twenty-four hours, as industry analysts debate the reasons behind the latest flash crash.
Perfect Storm
Mati Greenspan, a leading Market Analyst with trading platform eToro, has speculated on three potential factors behind the slide in prices, arguing that the crash may be the result of a perfect storm – a combination of adverse factors which have collectively compounded the market’s general downward trend.
“First, the Bitcoin Cash hard fork is turning out to be an arms race among bitcoin miners. It may not have direct impact on price but it’s something people are concerned about – there is a fear that miners might be diverting mining power away from Bitcoin into Bitcoin Cash,” states Greenspan, implying that a number of traders may have been hoping to outmanoeuvre a potential collective offload by miners as they leave the Bitcoin network.
Greenspan also postulates that “another contributing factor is the selloff in tech stocks, which could be having a spillover effect into crypto markets.”
What may have compounded these factors, however, is algorithmic trading, particularly stop-loss trading which, according to the analyst, kicked in ” … as bitcoin’s price falls below $6,000 [where] we’re mass seeing liquidation … as people try to play the breakout.”
Ken Lang, CTO of COSMIO Ventures and advocate of the ndau collective – a non-profit outfit looking to promote stability within the crypto-currency space – asserts that “One relevant factor in the price drop is that bitcoin doesn’t have a monetary policy in place to mitigate downside volatility.”
Lang is hoping that the latest crypto market crash will raise the wider question of how stability can be achieved. “When demand contracts, there needs to be be a process in place for contracting supply. Otherwise, market prices will fall, as we’ve seen today. As cryptocurrencies become more sophisticated and learn from the volatility and risks of older, more established coins, they should be designed with constraints in mind that help fight against sudden price dips like this one.”
