When we made predictions for 2018, perhaps the prediction most likely to come true was that the Bitcoin bubble would burst.
Bitcoin has already fallen hard. Initially, prices fell as South Korea began to crack down on cryptocurrencies. Pricing in South Korea has been especially high, giving Bitcoin and other cryptocurrencies a boost worldwide. Now, a ban on cryptocurrency trading is under consideration.
The real catalyst, though, behind its plunge from $17,000+ to $11,000+ (and fluctuating), according to The Wall Street Journal, was a 31-year-old programmer who runs a popular site for Bitcoin data out of his apartment in Queens.
Brandon Chez’s CoinMarketCap.com “is wielding unexpected impact,” according to The Journal. “On January 7, coinmarketcap.com decided to remove trading activity from South Korean exchanges from its price-quote algorithms. The reason: prices there were significantly and persistently higher than in other countries. To some, it seemed the Korean trades were artificially inflating the price of bitcoin.
“Without the South Korean bids and offers embedded in the CoinMarketCap listings, prices on the site fell precipitously. The price of the cryptocurrency XRP, for example, went from about $3.40 to $2.60 in one sharp move.”
Chez initially didn’t say that he was removing South Korean exchanges, so few people (if any) knew why cryptocurrency prices were dropping.
In a single day, the market value of digital currencies fell more than $100 billion.
Cryptocurrency is likely to survive. In fact, anyone who’s owned Bitcoin since at least mid-November can absorb the drop in price without taking a loss.
However, the case provides two important lessons: 1. Investor psychology drives markets – in both directions. 2. Last year’s biggest gainers are often this year’s biggest losers.