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Why Bitcoin Price drop shouldn’t be a surprise?

2017 started with a dream Bitcoin Bull Run with the cryptocurrency prices surging towards the all-time high. Before bitcoin enthusiasts could cherish the currency peak, there was a sharp drop in the price taking the currency back to $900 levels. Most people were shocked and disheartened about the abrupt shift in market dynamics. Market players started scurrying for reasons and comforted themselves with the circulating rumors involving China’s Policies. While it is true that China has always been a major influencer on Bitcoin prices, it might not be the driving factor here. Let’s look into why Bitcoin prices were bound to fall at peak levels and what would be the trajectory from here:

It’s all technical:

Bitcoin market has always followed the standard rule of currency markets: market trades all the regions adequately before moving to higher levels. It is very important to keep this in mind as market has always come back to trade low volume regions before resuming the Bull Run. This was evident when market went from $700 to $800 level and crashed back to compensate the lack of volumes.

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Similar to that swing, market went from $900 to above $1000 with scanty volumes. Hence the crash was expected and the market came back to trade the low volume regions.

The peaks are always sloppy:

The prices have been bullish for most part of last year and the market has been trending. The only way this could have been halted was the effects of strong, long term and negative fundamentals. This happened for a brief period in 2016 when China announced capital controls on Bitcoin which lowered the prices. Later the sentiment settled  and the market became trending in bullish direction.

When the market approached the peak for the first time in three years, the apprehension surrounding the speculation became very intense. With low number of buy orders at the top, traders and programmed algorithms can be set into a sell mode with little panic. With unstable market dynamics, the rumor acted as a catalyst for the quick crash.

What’s next?

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Following the pattern, the market has consolidated at 78% Fibonacci Retracement level. Algorithms are coded to have strict adherence to these levels. Infact quick acting algorithms would be reason for the crash of the market which ignited a sell off. These $900 levels would be a better entry position to set oneself up for long-term trades. If the all-time high breaks, the market is bound to go very high with good volumes and strong support.

 

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Bitcoin is Set to Displace the Bolívar in Venezuela

Bitcoin is shaping up to be the unofficial legal tender in Venezuela as the country continues to suffer the effects of hyperinflation in its currency. Venezuela has become a shadow of its former self as the once prosperous oil-rich country now struggles to provide citizens with the most basic needs of life.  The global crash in oil prices dealt a tragic blow on the country’s economy – its foreign reserves had $43B in 2009 but it has less than $11B now.

A series of ill-timed government policies such as socialist programs to redistribute wealth triggered economic chaos in Venezuela. However, the most recent economic policy that could cause Bitcoin to displace the Venezuelan Bolívar is the move to withdraw the 100-bolívar note from circulation. This article explores some of the reasons behind the trending shift towards Bitcoin in Venezuela.

Bitcoin comes to the rescue in Venezuela

The 100-bolívar was already practically worthless because it is worth less than $0.03 outside of the government’s ‘unrealistic’ pricing system. Of course, most Venezuelans don’t know what the 100-bolívar note is really worth and shopkeepers have started weighing the notes instead of counting them. Venezuelans have responded with riots and protests and the government have extended the deadline for outlawing the 100-bolívar note until January 20.

However, many Venezuelans have lost confidence in the country’s currency and many of them are starting to move their funds into Bitcoin. Bitcoin is global cryptocurrency and you don’t have to worry that its value would be eroded by the economic woes of any single country. In fact, economic woes tends to boost the price of Bitcoin in much the same way that gold tends to soar during periods of economic uncertainty.

The rushed nature of the move to outlaw the 100-bolivar note is also making people scared of holding fait currencies going forward. The Venezuelan government initially gave a 72-hour window for spending the 100-bolivar note but ATMs were mostly dispensing those same 100-bolivar notes and businesses were hesitant to accept the notes.

Hence, most people would have ended up with hundreds of thousands useless 100-bolivar notes if the window ended and they’ve not been able to replace their 100-bolivar banknotes. However, the decentralized nature of Bitcoin means that people don’t have to worry that the government will decide to outlaw the currency out of the blue.

Bitcoin will embed itself deeper into the Venezuelan economy

The Venezuelan government’s plan to remove the 100-bolívar note from circulation to be replaced with higher denominated notes reveal the level inflation in the country’s economy. In a report published recently, Steve H. Hanke and Charles Bushnell of Johns Hopkins  notes that Venezuela now has hyperinflation because it has maintained a monthly inflation rate of more than 50% for 30 days. In essence, the reality of hyperinflation in the Venezuelan economy makes its expedient to look for alternative currencies.

More so, analysts observe that the problems facing fiat currencies globally will be amplified going forward as isolationism continues in the global geopolitical landscape. Gil Luria, the director of research at Wedbush Securities notes that “the more there is an expectation for new barriers to be erected, the more there is an expectation that Bitcoin will be valuable for moving money across borders.”