Right after the bitcoin price appears to break the all-time high yesterday, it suddenly crashes by more than a fifth. According to Coin Market Cap, the price fell from $1,184 to $972. The previous largest price was recorded three years ago – bitcoin cost $1,165.89 as of November 30, 2013.
As we have already noticed and repeatedly underlined, the bitcoin price is strongly linked to the situation in China along with some other factors. Experts explain the current drop by the recent attempts of Beijing to shore up the Chinese yuan. While most of bitcoin trading takes place in China, such move of the Chinese government could have affected the cryptocurrency price. The yuan posted one of its biggest rises on record on Thursday due to strong economic data.
“What happened overnight is the yuan strengthened,” says Chris Burniske, blockchain products lead at ARK Investment Management. He explains that the Chinese yuan, that had recently been devaluing, rose 1% overnight.
“As a result, one of the notable things I saw is that Chinese bitcoin exchanges fell from trading at a premium over U.S. exchanges to actually trading at a discount, so there was a drop in demand on the Chinese exchanges,” says Burniske. Chinese bitcoin exchanges typically show higher prices for bitcoin than exchanges in other locations because of increased demand there.
Reaching and even breaking the all-time high may have also caused trading thin out, which resulted in such a significant price drop. The situation bears a strong resemblance with the previous slump in 2013, from which bitcoin has only just recovered. At that time, the price continued the upward movement during 2013 but plummeted after the collapse of its biggest online exchange Mt Gox. The value dropped from $1,150 to $200 in early 2015 while attempted to recover in the last two years.
Bitcoin is a cryptocurrency supported by a central ledger known as the blockchain, which enables transferring money across the globe quickly and anonymously. No need for a central controlling authority, one of the main advantages of bitcoin, makes the cryptocurrency so attractive for those wanting to get around capital controls, such as China’s. Generally speaking, bitcoin enthusiasts consider bitcoin a better monetary system, free from the control of central banks or transaction fees.
Overall, more and more people, including individuals and Wall Street investors, are getting involved in bitcoin trading. In December, the trading volumes of the cryptocurrency totaled 113 million coins, a 16-fold growth since 2013. The recent price spike was expected to encourage more industry players to acquire the virtual currency.