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Why are Bitcoin and cryptocurrencies dropping?

March 12, 2018

It seems everyone has missed the real reason for the recent drops in Bitcoin and, by extension, other cryptocurrenices. Yes, there were the Binance hack rumours that you heard about. Ok, you've also read about institutions and governments and more regulation talk. And yes, they have an impact but they are not the main catalyst for the recent drops.

 

Instead the origin of this answer requires us to look back a few years.

 

Mt.Gox was one of the original Bitcoin exchanges. It was hacked in 2014. At the time Mt.Gox was handling c.70% of Bitcoin transactions worldwide and naturally this hack sent bitcoin spiralling down from its all time high into a bear market for several years.

 

During this time, Mt.Gox managed to recover a significant proportion of the stolen Bitcoin. However, legal proceedings concluded to enforce that Mt.Gox pay their users back, but in fiat rather than in Bitcoin. Because of Bitcoins price increases during this time, paying the unfortunate users back is achievable but it means the owners of Mt.Gox must sell their Bitcoin stash.

And that is exactly what has been happening. They have been dumping 1000s of Bitcoins at a time, periodically over the last few months.

 

Adding huge sell orders to the market, without the quantity of buy orders to fulfil those sell orders at that price means that the sell orders are filled with lower priced buy orders until the sell order quantity is sold. This means that the price falls to fulfil the quantity of sell orders.

 

Or in simple terms… supply is greater than demand because of these unnatural selling events.

 

Take a look at this chart, from YouTube’s Data Dash, showing when Mt.Gox dumped their Bitcoin. Pay attention to the volumes of transactions and the subsequent drops in price.

 

 
Don’t be concerned. The rumors are that they have reached the amount that they can legally sell off for now. This means that supply and demand levels will return to normal and flip back to demand being greater and therefore sending the price higher.

 

What that means for you is that now may be an excellent time to buy some Bitcoin whilst the market is close to bottom. To get on-board at this opportune time see our guide on how to buy Bitcoin and also get $10(£7) of Bitcoin for free.

 

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