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Bitcoin’s Recent Price Dive: Did WannaCry Malware Cause It?

Last Updated March 4, 2021 4:56 PM
Lester Coleman
Last Updated March 4, 2021 4:56 PM

Bitcoin took a dive from its $1,800 territory down to $1,600 Friday, but it has since managed to recover and as of late Saturday was back in high $1,700 territory. The drop naturally alarmed the market, given the steady gains the currency has made in the last two weeks.

The Friday dip could have been caused by the WannaCry bitcoin malware infection that has afflicted 36,000 computers. The malware automatically encrypts files on the victim’s computer and tells the user to send $300 in bitcoin to a particular bitcoin address.

Hackers Seek To Short Bitcoin?

If the attackers are motivated by making a fast profit, they could be trying to manipulate the bitcoin price with the intention of shorting the currency. The hackers have given their victims a short time frame to unlock their computers.

Given the small size of the bitcoin market compared to other commodities, such price manipulation might be possible.

The malware infection is an alarming story with international implications that casts bitcoin in a highly negative light. It wouldn’t be unreasonable for a bitcoin holder to get nervous about being overexposed in the bitcoin market and deciding to sell some if not all of their bitcoin.

Nor would it be farfetched to worry that governments could see WannaCry as a reason to enact restrictions on bitcoin as a way to prevent future malware attacks, a move that would further diminish bitcoin’s price.

Could The Publicity Help Bitcoin?

But at the same time, the publicity over the malware infection caused many media outlets to educate the public about bitcoin, which could drive demand, ultimately delivering price recovery.

The dip could also have marked the start of a price correction. Some analysts have claimed bitcoin has become overvalued. Maria Terekhova noted in Business Insider  yesterday that questions are starting to arise as to whether the asset is headed for a bubble.

Another explanation could be that the price is simply consolidating its gains for the time being.

The fact that the gains have been steady this year is a positive reading, as opposed to the volatility of 2013 and 2014.

Challenges Still Exist

Some observers have expected a market correction to the recent rally on account of some challenges bitcoin continues to face.

Daniel Masters, director of Global Advisors Bitcoin Investment Fund, an investment fund listed on the International Stock Exchange on the Channel Islands, said a few days ago that bitcoin is “fully valued for the moment,” which could result in a pullback to $1,100.

In March, the U.S. Securities Exchange Commission (SEC) rejected a bitcoin exchange-traded fund (ETF) sought by Tyler and Cameron Winklevoss. The proposal is currently under review, however, and if approved, will give new credibility to bitcoin, especially among investors.

Bitcoin’s scaling challenge remains unresolved. A backlog of bitcoin transactions has slowed transaction time.

Some cryptocurrency exchanges, such as Bitfinex, have stopped allowing access to the banking system, preventing customers from withdrawing fiat currency.

Also read: Global malware campaign WannaCry is affecting bitcoin’s price

Positive Developments Continue

At the same time, there are some positive signs on the scaling challenge.

The market has opted not to support the Bitcoin Unlimited solution, which would have required a hard fork that would have split bitcoin into two currencies.

In addition, Litecoin has deployed Segregated Witness (SegWit), which enables faster cryptocurrency transactions. The successful SegWit deployment raises hopes that the tool can also help bitcoin solve its scaling challenge.

Masters of Global Advisors Bitcoin Investment Fund noted the longer-term outlook for bitcoin remains positive. In the next eight to 14 months, Masters expects bitcoin’s price to be around $4,000.

A jump in global trading volume, particularly from Japan, which recently legalized bitcoin, has contributed to bitcoin’s demand.

The interest from institutional buyers is another promising factor. Brian Kelly, the founder of Brian Kelly Capital, noted the biggest driver in bitcoin’s growth is institutional investors in the digital asset sector. He referred to the incoming capital as “real money” that will be used to fund the new Internet.

Capital flows into bitcoin are also increasing worldwide.

If massive malware attacks can affect bitcoin’s price, they join a myriad of factors. What remains to be seen is which factors will matter the most and for how long.

Featured image from Shutterstock.