Marco Verch/CC BY 2.0.
How quickly can I arrange a butler service? Is a diet of oysters and caviar nutritionally sustainable? Will a private jet fit in my garage? These were the thoughts of Bitcoin bulls a mere 48 hours ago. And who could blame them? Bitcoin was booming.
A little further back on 23 June, Bitcoin opened at $11,030.4, smashing through the $10,000 level and surpassing a prestigious milestone. It then soared through the next two $1,000 marks seemingly with ease and looked unstoppable on its way to the unprecedented price of $20,000.
Some thought Bitcoin was done after the first crash in 2017. That it would never again reach five figures. That it was a worthless concept that lived by enticing investors through unsubstantiated hype and dreams of what could never be and was eventually found out to be ultimately unsustainable and completely unviable in the real world.
Those crypto sceptics got it wrong. Or did they?
Suddenly, as it was potentially minutes away from topping $14,000, the Bitcoin rally was halted. No more oysters and caviar. Cancel the private butler. Send the jet back to its hangar. Bitcoin's price fell $1,900 in the space of just 20 minutes, with further losses coming later. But is this the start of its downfall, or just a minor blip on the way to jets and caviar?
Why did Bitcoin’s price fall?
Significant market movement is seldom simply random. It can mostly be attributed down to a specific occurrence or catalyst. In this case it’s no different.
At the time of Bitcoin’s initial fall, first reports were emerging of issues on the crypto exchange Coinbase. Founded in 2012, Coinbase is one of the largest and well-known companies that provides crypto services.
Investors were unable to use the platform last night and it suffered an outage, but this was said to have been resolved less than an hour later.
Even so, it was still long enough for Bitcoin’s price to fall over 12%. It would be foolish to not think the two events were linked.
BUT… was a fall inevitable?
Some major sources have cited other causes for the drop, albeit while still acknowledging the Coinbase outage had some sort of impact.
One reason that’s attributed for the decline is the increased intensity of buying in Bitcoin that has occurred over the last few days. Where for the most part of the year gradual increases has helped the crypto’s price to creep up while staying under the radar, the sharp exponential rises experienced this week has thrusted the crypto back into the limelight.
Its price was perhaps rising too quickly, with investors keen to not miss out on what could have been interpreted as the start of another bubble. With a buying frenzy driving the rally, its price was being inflated and no longer represented the true value.
So, it will be said that a sell period was inevitable. But the fact that it happened so drastically and at exactly the same time as Coinbase’s issues make it very unlikely that natural market forces caused the drop.
Is the Bitcoin rally over?
Crypto enthusiasts have been loving the recent action, as altcoins and Bitcoin alike have pushed on. This fall causes a problem though.
For those who aren’t aware of reasons for the fall, it could be misinterpreted as the beginning of a crash. If the fear is great enough, bears could take over and sell in order to realise any profit they may have already earned causing it to fall further and completely shut down the rally.
Having said that, most investors should realise that this is just a short-term blip and thus wait for future gains to restore any profit they may have temporarily lost.
It seems likely that Bitcoin’s progress will be slowed as this drop is a poke in the back to bulls that it can always drop back down at any moment. Is the rally over though? Unlikely. This could be the brakes it needed to ensure another bubble wasn’t created – and another crash occurs. If Bitcoin begins to slowly rise again then it could even turn out to be beneficial.
The quick rise and subsequent threat of a bubble has been thwarted, and yet it’s not been hit back down (as of yet) to a price that will hinder its progression in the medium to long term. The Bitcoin rally is temporarily on hold, so let’s see whether it will resume in the next few days. Put the caviar on ice for now...