What is the Bitcoin Crash?

Published by Thomas Herold in Investments, Trading

'Bitcoin Crash' is explained in detail and with examples in the Trading edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.

The Bitcoin Crash refers to one of five different incidents when the decade old crypto-currency saw its prices plunge off a cliff, sometimes by more than 50 percent in only two trading days. The most recent crash in the BTC has happened in 2017. In this spectacular crisis of the world’s greatest and leading crypto-currency, the BTC price plunged from $2,800 per coin to $1,800 apiece in under 48 hours. This represented a steep and eye-watering 35 percent drop. By any measure of the percentage decline this qualifies as a crash in the ultimate crypto-currency. It is because of an apparent imminent split in the crypto-currency that this occurred.

Some analysts have claimed that the Bitcoin crash of 2017 was actually a bullish event from a certain point of view. The charts demonstrated along the rising trend lines that the BTC price can decline all the way to between $700 and $1,100 and still be considered to be in an intact and longer term bull market. The 2013 peak trend line shows that the price of $1,100 will hold. Analysts have pointed to the three trend lines of bitcoin to argue that the BTC price will hover somewhere above $1,200 to $1,300. So long as this remains the case and this area holds, then it can be easily argued that the 2017 Bitcoin crash is actually a bullish occurrence.

This means that the speculators are withdrawing from the crypto-currency. The Bitcoin holders are rotating out as the weak hands changed out for the stronger hands, or the investors and consumers who choose to keep holding them.

The prior Bitcoin crash occurred in 2015. At this time, the currency dropped by over a quarter in only two days. This kicked off fears that the crypto-currency was experiencing its fourth major crash. At the time, BTC traded as low as $195. This was an overall drop of over 80 percent from the November 2013 prior record high price of $1,150.

The two Bitcoin crashes before this one in 2015 happened in the spring of 2013 and the summer of 2011. These both resulted from the popping of straight up speculative bubbles in the price. The 2015 crash represented more of a consistent decline that actually transpired gradually starting back in June of 2014. After a number of months of consistent price stability in the neighborhood of $600 per bitcoin, the price began to fall.

Part of the underlying causes for these various every other year crashes in the leading crypto-currency have to do with the ways that it is created. The network of Bitcoin powers on the processing and uncovering efforts of the various miners. These are massive computer arrays which are assigned the tasks of solving highly complex algorithmic puzzles. The reward for these equations solving are bitcoin. Firms have ploughed many millions of dollars into creating specialized servers that now dominate the process of bitcoin mining. They attempt to recoup their considerable startup costs using their share of the bitcoin rewards.

The problem has come in as these firms borrowed real millions of dollars in order to begin their operations. Some of their loans were called in early as the prices of the underlying Bitcoin crashed and burned. This forced the companies who were mining to sell off some of their reward BTC which they had hoped to keep until the price of the underlying BTC crypto-currency recovered.

Two events have helped to contribute to the continuing bitcoin crashes. One of these was a hacking attack on Bitstamp in January of 2015. Around $5.6 million in BTC were stolen by the successful hackers. This was a minor hack attack though compared to the one that destroyed the long-time leading Bitcoin exchange Mt. Gox back in 2013/2014.

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The term 'Bitcoin Crash' is included in the Trading edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.