The massive price increases of Bitcoin in the fall and winter of 2017 attracted considerable attention from the press and investors. While the price of Bitcoin has fallen from its all-time high of $19,458, we have to remember that it was only at around $1,000 at the start of 2017. With a price around $8,000 in the first week of February, Bitcoin has still enjoyed a 700% gain in less than 14 months, and massive gains over the preceding few years. In the spring of 2011 Bitcoin had just reached parity with the US dollar for the first time, hitting a $1 per coin price point.
Despite this longer-term growth, the massive price dip is a cause of concern for investors who bought Bitcoin during the “rush.” And buyers who are new to cryptocurrencies might want to learn more about the reasons behind the dip. While the mechanics of the Bitcoin market are complicated and influenced by multiple factors, here are some reasons for recent price swings:
A Correction Was Due
Some analysts feel the price drop is simply a bubble that is “releasing air.” The bull market certainly isn’t over, but the run-up in prices was so dramatic that a fallback was all but inevitable. The price gains with Bitcoin were unprecedented, so now that they have retrenched somewhat there should now be movement towards steadier growth.
Banks Became Concerned
The Bitcoin price increases in late 2017 were partially due to the influx of individual investors. Many of these investors used credit cards to purchase cryptocurrencies, which increased demand dramatically. However, several banks have grown worried about the ability of these credit card-funded investors to pay their card balances, so they’ve cut off their customers from exercising that option, decreasing the amount of liquidity available for cryptocurrency transactions.
Regulation Continues to Threaten
South Korea is the third-biggest market for cryptocurrencies after the US and Japan, and the policies of the country’s government can greatly affect the overall cryptocurrency market. The South Korean government is attempting to ban anonymous trading as a means to control speculation and combat money laundering and tax evasion. This and other proposed regulations have stalled investing by South Koreans and residents of other countries who see non-anonymous trading and excessive regulations as a violation of Bitcoin’s core values.
In the US, the Securities And Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) are also looking closely at Bitcoin regulation in an attempt to bring stability to the market and prevent fraud. Such moves might slow down Bitcoin’s movement back to all-time highs but, if successful, such efforts should boost investor confidence.
Despite the dramatic price gains and subsequent losses for Bitcoin, there’s still tremendous potential for cryptocurrency as a store of value and a global payment system. Many analysts predict several more years of relatively volatile prices as Bitcoin and the entire cryptocurrency market mature become more established investments.