Thoughts on Recent Price Decline

We will update this page as we learn more

The price of Bitcoin has gone down almost 15% in the last week, but a specific cause is not immediately apparent.

Bitcoin Magazine made the argument that the price drop is due to individuals selling their Bitcoin in order to buy in to the upcoming Alibaba IPO. This claim seems to be a bit of a stretch. For one thing, I'm not sold on the idea that the same people actively investing in Bitcoin are also interested in Alibaba shares, or at least not in significant numbers.

The price decline is most likely due to a combination of factors: sell pressure from miners covering their overhead, miners skirting capital controls, merchants instantly converting accepted Bitcoin for USD and investors selling either to cover their losses or due to a lack of faith in the currency. Bitcoin is still trying to reach a price equilibrium after the massive spike in price this year. Put simply, the price rose way too quickly, and now it needs to fall, until the demand between buyers and sellers levels out. Let's not forget that this time last year, the price of Bitcoin on Bitstamp was around $120, the ecosystem has come a long way since.

Until there is desperation among the majority of Bitcoin holders, we will have yet to see the bottom, and the price will continue to decline. During the stagnant period last year, where price hovered in the mid $100s, and then when the Silk Road bust happened and plummeted the price to the $70s, people throughout Bitcoin communities were becoming extremely desperate. Price is not what's important, was the often cited mantra. We haven't reached that level of desperation yet.

Update 1 (09/21): Michael Casey, of the WSJ, argues that Chinese investors are using Bitcoin mining to bypass capital controls. The investors then immediately sell their Bitcoin for dollars, leading to increased sell pressure and a declining price.

We will update this page as we learn more


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Disclaimer: This post is intended solely to provide information. As I have no knowledge of individual circumstances and technical level, readers are expected to complete their own due diligence before proceeding with anything mentioned in this article. The topics discussed in this post are advanced and readers proceed at their own risk. Readers are expected to complete their own due diligence before purchasing or selling anything mentioned or recommended.