Bitcoin and Other Cryptocurrencies Are Plunging. Here's What Could Happen Next
While a “Santa Claus” rally appears to be underway in the stock market, cryptocurrencies just got a visit from the Grinch.
Bitcoin and virtually all of its major rivals saw their prices plunge Friday, as the cryptocurrency bubble appears to be bursting.
Bitcoin prices sank from around $16,000 on Thursday to below $10,900 early Friday morning, before recovering somewhat to $12,000. Since peaking near $20,000 at the start of the week, the world’s largest cryptocurrency has lost around 40% of its value.
It’s not alone.
Rival Ethereum saw the price of an ether token slip from as high as $793 on Thursday to as low as $491 Friday morning, before bouncing back to around $600. Even with the rebound, the digital currency was still down more than 20% for the day. The same goes for Litecoin (down 20%) and Ripple (down 18%).
What’s Causing the Cryptocurrency Crash?
The bullish take: This could be profit-taking among really short-term investors who just recently bet on cryptocurrencies to turn a quick profit.
“We see the exit of short-term speculators and we have seen it before,” Michael Jackson, partner at venture capital firm Mangrove Capital Partners, told CNBC. “The vast majority of long-term holders of bitcoin are still way in the money and have shown no sign of cashing out.”
While it’s true that pullbacks can be a healthy thing for market rallies in general — as they drive out buyers with weak conviction, leaving a stronger base of “true believers” — that’s not likely to happen here. In fact, you should expect even more volatility and sell-offs going forward.
Why? This week’s plunge in most of the major digital currencies coincides with the start of widespread trading in bitcoin futures contracts on the Chicago Mercantile Exchange, the world’s largest futures exchange.
This means that for the first time, investors can bet on and against bitcoin prices, creating a potential downdraft for bitcoin. (Bitcoin futures on the CME were also down around 15% on Friday).
What’s more, the growing popularity of cryptocurrencies in general is attracting a different type of investor.
In the early stages of the cryptocurrency boom, most investors were true believers who either intended to use bitcoin as currency (and therefore had a vested interest in its appreciation) or were buying the currencies for short-term gains (and were also rooting for rising prices).
Now, a wider audience is being drawn in, including institutional investors who stand to profit whether bitcoin prices go up or down.
Bitcoin and virtually all of its major rivals saw their prices plunge Friday, as the cryptocurrency bubble appears to be bursting.
Bitcoin prices sank from around $16,000 on Thursday to below $10,900 early Friday morning, before recovering somewhat to $12,000. Since peaking near $20,000 at the start of the week, the world’s largest cryptocurrency has lost around 40% of its value.
It’s not alone.
Rival Ethereum saw the price of an ether token slip from as high as $793 on Thursday to as low as $491 Friday morning, before bouncing back to around $600. Even with the rebound, the digital currency was still down more than 20% for the day. The same goes for Litecoin (down 20%) and Ripple (down 18%).
What’s Causing the Cryptocurrency Crash?
The bullish take: This could be profit-taking among really short-term investors who just recently bet on cryptocurrencies to turn a quick profit.
“We see the exit of short-term speculators and we have seen it before,” Michael Jackson, partner at venture capital firm Mangrove Capital Partners, told CNBC. “The vast majority of long-term holders of bitcoin are still way in the money and have shown no sign of cashing out.”
While it’s true that pullbacks can be a healthy thing for market rallies in general — as they drive out buyers with weak conviction, leaving a stronger base of “true believers” — that’s not likely to happen here. In fact, you should expect even more volatility and sell-offs going forward.
Why? This week’s plunge in most of the major digital currencies coincides with the start of widespread trading in bitcoin futures contracts on the Chicago Mercantile Exchange, the world’s largest futures exchange.
This means that for the first time, investors can bet on and against bitcoin prices, creating a potential downdraft for bitcoin. (Bitcoin futures on the CME were also down around 15% on Friday).
What’s more, the growing popularity of cryptocurrencies in general is attracting a different type of investor.
In the early stages of the cryptocurrency boom, most investors were true believers who either intended to use bitcoin as currency (and therefore had a vested interest in its appreciation) or were buying the currencies for short-term gains (and were also rooting for rising prices).
Now, a wider audience is being drawn in, including institutional investors who stand to profit whether bitcoin prices go up or down.
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