Why The Bitcoin Price Is Going Down

Get Exclusive Analysis and Investing Ideas of Future Assets on Hacked.com. Join the community today and get up to $400 in discount by using the code: "CCN+Hacked". Sign up here.

Get Exclusive Analysis and Investing Ideas of Future Assets on Hacked.com. Join the community today and get up to $400 in discount by using the code: "CCN+Hacked". Sign up here.

bitcoin trend is point downTo be clear right from the start: You won’t find a definite answer in this article. There are many theories why the price is going down, and it is interesting and insightful to look at them. There might be one that you really like, and there might be one you think is true, but we can’t be sure. Some good theories can be found below.

[divider]CCN[/divider]

Possible reasons for why the Bitcoin price is going down:

  • Dell is selling their first bitcoins.
  • The whales (big Bitcoin holders) are selling.
  • Investors think Bitcoin is still in Bubble territory.
  • There is no real reason to go up, and crypto in general doesn’t seem to like stability, so it either goes up or down.
  • A lot of people have their summer vacations right now. People who hold BTC sell some to get money for travel and vacations.
  • Sales of Etherium. Around 19 million Ether has been sold for 2000 Ether per Bitcoin. That is 9500 Bitcoin being sold in a couple of days.
  • Miners are selling and no new investments are being made.

When looking at the latest Bitcoin USD price chart, the downward move looks very consistent. The first and last reasons therefore make sense to me.

Bitcoin price chart 30 july 2014

Bitcoin USD price chart

Miners are constantly mining new bitcoins and selling them for dollars to cover their costs. They create a constant down pressure on the price. This is usually offset by investors willing to stock up on new Bitcoin. But investments are lacking. Why?

User Interest still going down

Google Trends – User searches for “Bitcoin’ are going down

It’s because new user interest in Bitcoin is dwindling around the world. Take a look at the Google Trends graph above (or search yourself for “Bitcoin” and select “2004 – present” and “Past 90 days”.

There is a clear correlation between user interest and the Bitcoin price. And for the moment, global new user interest is lacking. Big investors like pension funds will not stock up on Bitcoin until established market instruments like the Winklevoss EFT and SecondMarket Bitcoin Investment Trust are available, which are likely to arrive in Q4 2014 or early 2015.

bitcoin price trending downwards

As mentioned by this recent price update article, price levels are determined by these actions:

1. Miners are mining and mostly selling.
2. Investors are buying and mostly hoarding.
3. Enthusiasts are buying and mostly spending.

This can be explained / rewritten as follows:

1. Miners selling their newly minted bitcoins for dollars (inflation and sell pressure).
2. New investments made in Bitcoin (by current and new users).
3. Merchants (Dell, OkCupid, Overstock, etc) receiving Bitcoins and selling them for dollars.

Merchants who receive Bitcoin generally trade for USD immediately, and thus generate sell pressure. But enthusiasts shopping with Bitcoin also stock up on new bitcoins which could offset this price change. So the third point should have little net effect. Though one user commented that:

Major retailer acceptance has a short term DOWN effect on the price. Because when a major retailer announces acceptance, old coin holders rush to spend some Bitcoin to support that retailer, often creating millions of dollars of transaction volume in a few days, and all these bitcoins will be converted to fiat by the retailer, creating sell pressure, for the short term.

I could not confirm this, but perhaps Dell is selling their first bitcoins from sales.

In the long term, this is good for Bitcoin, since every company that accepts payment in Bitcoin raises the usefulness of Bitcoin, thus more people will want to buy.

For the moment, the miners just seem to be winning from the investors.

 

Update:

According to the long term (green) trend line, the current drop towards $500 was to be expected:

Bitcoin price chart in USD with regression prediction lines

Bitcoin price chart in USD with regression prediction lines

 

 

 

Featured image by Shutterstock.


Tags: