Bitcoin price, which had moved sideways for the last couple of weeks, crashed to its lowest level this year. The cryptocurrency shed approximately 13% of its value in less than five hours, bottoming out at $5523 yesterday morning before recovering. Its overall valuation also fell below $100 billion for the first time since last November.
Bitcoin’s fall had a domino effect on cryptocurrency markets. The five most valuable cryptocurrencies also slid by more than 10% and valuations for cryptocurrency markets fell below $200 billion. Bitcoin cash, which underwent a contentious fork yesterday, was the biggest loser, rapidly discarding as much as 15% of its value.
As of this writing, the markets and bitcoin price were mostly moving in a flat line. The overall valuation for cryptocurrency markets was $183.9 billion. Bitcoin was changing hands at $5,533.59, unchanged from its price a day earlier.
Why Did Bitcoin Price Crash?
As to the cause of yesterday’s price crash, there is still no consensus. “It’s a little hard to pinpoint,” says Tanooj Luthra, co-founder of Elph – a scaling network that consolidates transactions on Ethereum. As examples, he pointed to two events that occurred in tandem with the slide in cryptocurrency markets.
The first one was the monthly expiration of bitcoin futures at Cboe. The second possible reason for the slide in cryptocurrency markets is a fork in Bitcoin Cash, the world’s fourth most valuable cryptocurrency, into Bitcoin ABC and Bitcoin SV.
Luthra says the fork might result in a shifting of mining resources from bitcoin’s blockchain to that of bitcoin cash because both cryptocurrencies share the same algorithm to mine new coins. Mining power is an important consideration in determining a cryptocurrency’s availability and trading in the markets.
“If the price of one of these two (Bitcoin ABC and Bitcoin SV) goes up, it becomes more efficient for miners to start mining the more valuable coin,” he explains, adding that the “uncertainty” in future valuations for bitcoin may have triggered a selloff.
Appearing on CNBC, Chris Burniske - author of a book on crypto assets, dismissed the idea of mining shifts. “It (Bitcoin Cash) has its own network. Its own drama,” he said. “I don’t think it is really relevant to bitcoin even though it clearly does have implications for market sentiments.”
What Does The Future Hold For Cryptocurrency Markets?
Despite the abrupt fall in prices yesterday, Luthra is optimistic about cryptocurrency markets. “This year is much, much more realistic about what the use cases are regarding the actual utility of cryptocurrencies (as compared to last year),” he said. He says prices for cryptocurrencies will probably stay in the current range until the end of this year. “It (the prices) will be much more stable,” he said.
Derek Urben, the chief financial officer at Coinigy, a cloud trading platform, echoes that view and says bitcoin has further room to fall by the end of this year. According to him, the Network Value to Metcalfe ratio (NVM), which is used to value bitcoin based on growth in its network, is not “supportive” of bitcoin’s current price. The share of non-trading volume in that network is also “still anemic”, he says. “I expect crypto to continue its plateau or slight downturn into 2019 save for a large corporation, either institutional or retail, entering the market – much like Fidelity,” he said.