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Bitcoin crashes to below $500
Bitcoin has crashed to below $500 for the first time since May, dipping as low as $309 on BTC-e, the world’s third-largest Bitcoin exchange. The “flash crash” put an end to a relatively stable period for Bitcoin.
The cryptocurrency has been the subject of big sell-offs since last week. Cryptocurrency site CoinDesk reckons it has shed $100 – about 17% – in the past few days, with its market cap plummeting from $7.7m to just over $6m, after the US Consumer Finance Protection Bureau warned cryptocurrencies are still a “Wild West”.
Source: Coindesk
Users blamed today’s crash on the effect of a massive “margin call” by traders on Hong Kong-based exchange Bitfinex, one of the few exchanges allowing traders to borrow funds to buy Bitcoin.
“There were ~1500 Bitcoins sold on BTCe at … cost, bringing its price down to $390 level within seconds. I speculate that this is totally manipulative in nature,” complained one Reddit user.
According to traders, large ‘sell’ orders began to show up on BTC-e at around 12.30pm UK time, pushing prices down, although they had bounced back to just over $454 half an hour later, and were hovering around $452 at 5pm.
Raffael Danielli, a quantitative research analyst at ING, explained his more benign theory to CoinDesk – that traders had become increasingly concerned about proposed US regulation:
[Positive sentiment about US regulation] resulted in large buying activities and traders on Bitfinex started to borrow as much money as they [could] to buy more bitcoins and increase their position in anticipation of a market upswing. As it turned out, New York’s proposed bitcoin regulations are more on the harsh side and the European banking authority also decided to take a very cautious approach. In other words, many traders were caught on the wrong foot and today they paid the price.
Whether or not today’s “flash crash” was manipulation, it acts as a warning that Bitcoin is still heavily vulnerable to market whims. As Richard Courdray, director of the US’ Consumer Financial Protection Bureau warned last week: ‘Virtual currencies may have potential benefits but consumers need to be cautious and they need to be asking the right questions’.