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Bitcoin's Value Plummeted Overnight and No One Knows Why (slate.com)
Jacob Brogan, writing for Slate: While the Western Hemisphere slept, Bitcoin plummeted. Just after midnight Eastern Time on Friday, the cryptocurrency was valued at a little over $15,000, on the digital currency exchange Coinbase. At that point, it was already well below the $19,783 all-time high it had hit the week before. Over the course of the night, Bitcoin began to decline erratically, occasionally spiking but following a general downward trend. Around 9:22 a.m. Eastern, it hit a temporary floor, valued at a mere $10,400. By that point, it had declined more than $6,000 from its short-term peak the morning before, having lost more than one-third of its value. Bitcoin wasn't the only currency hit by a sharp drop. Tech Crunch's Jon Russell reports that most other prominent cryptocurrencies also fell, including Ethereum, Litecoin, and Bitcoin Cash (which is, confusingly, separate from Bitcoin proper). As Russell notes, it's hard to say why this is happening, "in the same way that nobody knows exactly why bitcoin's price has [shot] up from a touch under $1,000 at the start of the year."
There's no "reason" because there's no rational valuation mechanism. Cryptocurrency without a mechanism for value stabilization is a scam. Blockchains are clearly useful for certain kinds of distributed trust problems, but Bitcoin is merely one instance that was always marketed as a cryptocurrency but has zero use as a transaction mechanism. Nobody wants to use a currency that may be worth 20% more, or 20% less the next day.
The only valid use case for Bitcoin I've heard described is as an improved version of the offshore banking system. In other words, a mechanism for rich people to launder and hide money. Of course, a cryptocurrency with value stability would sure as hell be a lot more useful and trusted for even this grey market purpose.
Ultimately, Bitcoin's value is driven by grey and black market activity. Money laundering, cybercrime, etc. Investing in Bitcoin is essentially investing in a residual claim on this underbelly of the economy, in the same way that regular fiat currencies are residual claims on national economies, with a healthy dose of mindless speculation and bubblemania thrown into the mix.
I agree, it's profit taking.
It's like how investors pulled $14.5 billion out of the market this week.
This will never go mainstream at scale as long as the underlying transactions are so fabulously expensive. I read a recent analysis that actual blockchain verified trades can cost as much as $20 to execute (when accounting for the capital and power costs of all the people involved in competing for the initial hash solution).
Even if a trade only costs $0.20, that's still too high to compete with the likes of Visa and MasterCard - at scale, and the 2.75%+ that CC companies charge is going to have to creep into mainstream cybercurrency transaction schemes as well to cover practical costs of fraud, customer service and investor dividends in the real world.
Coins are not lost if the transaction isn't processed. The sender still owns the coins until the public distributed ledger says otherwise, which it won't until the transaction is confirmed and included in the block chain. The protocol has a "replace-by-fee" (RBF) where you can just re-create a new transaction with a higher fee than the old unconfirmed transaction and the new transaction, once confirmed, becomes the fate of the sender's coin, and the old transaction, if it ever gets processed, will be rejected as that coin has already been spent.
Great. So I'm a local electronics store. I sell someone a laptop for .1 BTC. Fair deal. That transaction is queued for a few days. He wants to walk out of the store with the laptop today. Either the store takes a huge risk of fraud (or even mistake), or the user can't get what he buys for days. Which is why anyone who thinks this is a workable currency is a fucking idiot.
I still have more fans than freaks. WTF is wrong with you people?
Selling a lot of BTC, quickly, and more importantly reliably, needs the cooperation of bitcoin miners to process your transaction quickly, ahead of others, instead of waiting until... whenever.
So, look who processed all those BTC sale transactions and how they are connected with the sellers.
Clearly, BTC trading benefits from insiders because it is so illiquid.
"For a successful technology, reality must take precedence over public relations, for Nature cannot be fooled"
Four things happened starting on Tuesday. Coinbase added BCH, margin accounts and interest became unsustainable, margin calls, exit strategies.
Coinbase added support for Bitcoin Cash on Tuesday. They also gave everyone 1 BCH for each BTC you had at the time of the split. This should have flooded the market with BCH and driven the price of BCH down. Also the sellers of BCH should have invested in other currencies and pushed those prices up. The opposite happened. News that coinbase was accepting BCH actually pushed BCH's price up and the shift to BCH caused other currencies to fall.
Most of the trading is now automated trading. You can also buy on margin. However the margin has a 1.5% interest per day. Then funny things happen. If someone borrows 1 BTC and shorts it, and then buys an equivalent amount of 10 other more volatile coins using that money they could cover the interest. For the past 2 months this worked really well. Most smaller cap currencies have gone up more than BTC by more than 1.5%. It seemed like low risk investing. People treat crypto like the stock markets treat stocks assuming that having 100 different stocks has less variability than 1. Unfortunately like the stock market, there is a high level of correlation in price change.
Now after Tuesday, people who had margin accounts had to top up their margins. This caused a slow sell but the interest rates made borrowing for more than 3 days difficult so starting late last night a lot of people had no choice but to sell.
Exit strategies - eventually everyone has to actually use their money. I know a lot of people who have made 10x their investment. Their exit has been if it falls 30%, I sell 50%. So if they put in 100K, they had 1M yesterday, 700K this morning and then sold to have 350K in fiat and 350K still in crypto. You can automate that sell.
The weird part. There are no natural sellers in crypto currencies. They aren't backed in any meaningful way anymore. After this crash all the remaining people who own crypto are non-sellers. They are greedy and will hold indefinitely. The margin people who had to sell are gone, my friends with exit strategies are out. The only sellers left are people who are moving money between crypto currencies. The prices of most currencies not in the top 10 market cap are going to jump 15% before the day is done. In a week the money will be poring back in and zero money will be being pulled out.