Bitcoin enthusiasts are no stranger to crashes, but the cryptocurrency is currently in the midst of one of its most dramatic falls yet.
As of publishing at 6:12 pm IST, bitcoin has fallen below the $8000 barrier, and now trades at $7,774 per bitcoin. That’s a stunning fall from the high levels of nearly $20,000 it had traded in December. Bitcoin has now lost more than 60% of its value in just 45 days.
Bitcoin’s torrid run has been on for the last couple of sessions. Just today, it has lost over 11% of its market value. This week, it’s down 30%. This month, it’s down nearly 50%.
It’s hard to pinpoint what’s cause the current crash, but bitcoin has been plagued by some bad news over the last few days. Earlier this week, there had been doubts raised about the sustainability of Tether, a coin that’s benchmarked against the US dollar, and trades at a value of 1 USD = 1 Tether. Critics have said that the company which issues Tether doesn’t have enough dollars in reserve to pay for all the Tether it’s issued, with fears that the entire currency could crash.
This, in turn, has had a knock-off effect on bitcoin. The promoters of Tether also run Bitfinex, one of the largest bitcoin exchanges in the world, and Tether is often used for transactions between bitcoin exchanges. If Tether crashes, it is likely to impact Bitfinex, and the crash of one of the cryptocurrency’s biggest exchanges isn’t good news for bitcoin.
Some bad news has also come from an unexpected source — India. Yesterday Arun Jaitely made an announcement during the budget that said that the government was looking at cracking down on illegal uses of bitcoin. While in substance the government hadn’t changed its position towards bitcoin — it’s never recognized it as a currency in the first place — loud headlines in the Indian media proclaimed that India had banned bitcoin. India might not be the biggest market for bitcoin, but it’s not insignificant — every tenth bitcoin transaction in the world takes place in India — and the effect of the supposed ban has brought its price down even further.
But while bitcoin is down significantly from its highs, it’s hard to determine how much it’s really worth, and what its fair price is. Even as bitcoin’s price has rose 1000% in 2017, usage remained exactly the same, with hardly anyone using the currency for everyday transactions. That was probably for good reason — bitcoin transactions can take hours to complete, and the associated transaction fees means they can’t be used for small purchases. Bitcoin is also ridiculously volatile — you don’t want the value of your currency to change by the time you’ve paid for and finally had your coffee. There have also been several hacks of prominent exchanges where people’s bitcoin have vanished into thin air, and that doesn’t exactly help investor confidence.
At the moment, though, bitcoin is in freefall, and there’s no knowing at what level it’s eventually going to settle.