Bitcoin (BTC): Reasons behind the recent price collapse
In the past month, the cryptocurrency market has experienced a decline of more than $60 billion, with many major cryptocurrencies recording double-digit drops in prices. Being the most important cryptocurrency in the market, Bitcoin fell to $3,200, which is a new low since September 2017 and has since fallen around 80% from its peak in 2017. Consequently, the decline of Bitcoin has also pulled down the cryptocurrency market, thus contributing to the big drop in most digital currencies.
Here are some reasons for Bitcoin’s recent price slump:
1.BCH Hard Fork
Bitcoin Cash first emerged on August 2017 after departing from Bitcoin’s (BTC) original Blockchain via a hard fork, in an attempt to manage BTC’s scalability problem. Recently, the latest Bitcoin Cash network update has resulted in a hash war, where the Blockchain has been split into two: BCH ABC and BCH SV.
Bitcoin ABC (Adjustable Blocksize Cap) aims to preserve Bitcoin Cash from major changes, and is lead by Roger Ver, with strong supporters such as Binance, Coinbase and Bitmain.
Bitcoin SV (Satoshi’s Vision), founded on August 16 by a Blockchain development firm affiliated with Craig Steven Wright, aims to restore “the original Satoshi protocol” by radically changing the current BCH structure by increasing the block size of BCH to increase network capacity and scalability.
The BCH saga has influenced the stability of the cryptocurrency prices. In BCH “hard fork” saga, hash power was possibly redirected from Bitcoin to Bitcoin Cash. This means that during the hash wars, there was larger power fluctuations, and possibly less miners available to sustain the Bitcoin network. Furthermore, Bitcoin holders might worry about stability issues concerning BCH that might affect Bitcoin. This could have increased the selling behavior and caused the digital currency market shrink further in the current price slump.
2. Global stock market downturn
This year, the US stock market has been slumping and most of the bullish tech giants have been frustrated by poor sales results, coupled with a slow global economic growth. Facebook, Apple, Amazon, Netflix and Google stocks have also fallen about 20% from its previous historical highs.
The Sino-US trade war further complicates the global economic slowdown and the conflict between the two major world economies have culminated in large market uncertainty, which led to a 2.7% decline in the Nasdaq index and a 1.6% decline in the S&P 500 index. The leaders of the United States and China are scheduled to meet at the G20 summit, this month. The global stock market and the cryptocurrency market will definitely be influenced by the outcomes of the summit.
The Sino-US trade war coupled with the Bitcoin Cash hard fork has prompted investors to temporarily withdraw funds from the market pressuring Bitcoin prices to decline drastically.
3. Regulatory policies becoming stricter
In November 2018, the China Securities Regulatory Commission (CSRC) issued a new regulation for digital assets, stating that cryptocurrency investments must be regulated by the CSRC. Similarly, the US Securities and Exchange Commission (SEC) issued the "Digital Asset Securities Issuance and Transaction Statement" and announced that it had penalized two ICO cryptocurrency companies for violating the rules. These regulations could have further affected investors' confidence in cryptocurrency.
Additionally, several finance ministers of the member states from the European Union believe that cryptocurrency can be abused as a money laundering, tax evasion or terrorist financing tool, due to its lack of transparency. As such, there has yet to be widespread adoption of Bitcoin globally.
In the short run, the downward trend will largely be driven by investors’ sentiments and market speculation that could cause great market volatility, affecting many retail investors. However, as the global adoption of Bitcoin, cryptocurrencies and Blockchain technologies start to rise, and the bear market cycles reverses, many large-scale institutional investors will likely lead the next round cryptocurrency growth.