On June 10, leading digital currency bitcoin (BTC) plummeted in value, losing 10% of its price in a period of only four hours, according to bitcoinist.com. The entire cryptocurrency industry seemed to follow suit, and the result was a loss of $25 billion in total value in the span of a single day. Bitcoin and other digital currencies have proven themselves to be highly volatile, but as the price continues to dip lower and lower, analysts and investors alike are growing concerned. Just how far can bitcoin continue to fall? In order to answer that question, it's helpful to look at potential reasons why the most recent flash crash occurred.
Below $5,000 Possible?
Bitcoin has been testing low thresholds for the past several days. After plummeting down to the mid $6,000s, analysts like Tone Vays expect that the cryptocurrency will continue to dip. Vays said his "most optimistic" bear target for BTC is a little below $5,000. Other analysts have suggested that $6,000 could be the low point. Bitcoinist's report suggests that the Fibonacci retracement tool marks a full retrace, with BTC giving up all gains since the rally in April, and then some. If the price of BTC hovers below $6,766, the report suggests, there remains a risk that it will break below $6,600. Just months ago, the price of BTC was roughly three times that level.
Longer Term Concerns
A mixture of factors may have contributed to last weekend's crash, including the Coinrail hack that affected a South Korean exchange, an expanding investigation into cryptocurrency manipulation and more. Looking ahead, Bitcoinist believes that the leading digital currency will remain in trouble so long as it stays below $6,766. A corrective rally might bring the price above $7,000. However, "technical indicators show a strong downtrend and weak volume will not support a strong recovery in the short term." Essentially, bitcoin investors should not hold (or HODL) their breath when it comes to waiting for the value of their tokens to come back up. Because the rest of the industry tends to follow along with bitcoin's movements, this could also spell troubled times ahead for many other digital currencies, too.
Investing in cryptocurrencies and Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns bitcoin and ripple.