Bitcoin price plunge sparks new crash fears

Bitcoin had a stand at the CES exhibition in Las Vegas last week. Photograph: Ethan Miller/Getty Images

The price of one bitcoin has plunged by more than a quarter in just two days, prompting fears that the currency is in the midst of its fourth major crash.

On Tuesday morning, the currency was being traded at $267 a coin on Bitstamp, the largest individual exchange. However, by late Wednesday afternoon that had collapsed to just $195 - a fall of 27%.

The slide means that the currency has fallen by more than 80% from its record high of $1,150 reached in November 2013.

Unlike that crash, and the two before it in the summer of 2011 and spring of 2013, this time the cryptocurrency has not been the victim of a speculative bubble that then popped. Rather, the price of bitcoin has been declining fairly consistently since June 2014, when it started falling after months of temporary stability at about $600 a coin.

Greg Schvey, a partner at cryptocurrency data firm TradeBlock, told the New York Times that the new precipitous decline showed signs of a squeeze on bitcoin. People have these very real fiat-based liabilities that they have to pony up for, and to do that, theyre going to have to sell Bitcoins, he said.

The bitcoin network runs on the processing power of miners - computers put to work solving algorithmic puzzles in exchange for rewards in the currency. Companies that have invested millions of dollars into building specialised server farms have come to dominate the mining process, and received their share of the rewards.

But Schvey suggests that the real money those companies borrowed to start operating were beginning to be called in, forcing them to sell some of their proceeds that they may otherwise have held on to in the hope of a recovery in the price of bitcoin.

Further, the cryptocurrency has been shaken by yet another attack on the infrastructure that enables it to function as a working economy. Bitstamp reported a successful hacking attack in early January, which forced it to close its doors temporarily after $5.6m of bitcoin were stolen. While the attack was nowhere near as severe as that which took down the once-leading exchange, MtGox, last year, it still alarmed many.

In the face of the slump, many bitcoin proponents are turning their attention to a more fundamental technology called the blockchain. Sitting at the core of the bitcoin currency, the blockchain is the concept that allows money to be traded on a truly decentralised basis, but some argue that its capability goes far beyond that. The comparison most often drawn is that if bitcoin is an application, such as email, the blockchain is more like the whole internet.

Link:
Bitcoin price plunge sparks new crash fears