Has Bitcoin's bubble just burst?

PUBLISHED: Thu, 05 Jan 2017 15:40:43 GMT
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Bitcoin tanked as much as 23 percent Thursday afternoon after nearing an all-time high earlier in the trading day. 

The world’s largest cryptocurrency by market cap traded as low as $887.47, down from the day’s high of $1,153.02, according to CoinDesk data. The high for the day was just shy of $1,165.89 set on November 30, 2013. The price has recovered somewhat from the day’s low to about $973.89 at the time of publication.

However, bitcoin beat its high on some other cryptocurrency exchanges. Whereas CoinDesk’s price index takes into account many different bitcoin exchanges – individual exchanges, where users can trade bitcoin, noted their own highest prices were exceeded. Among these were one of China’s biggest and most liquid exchanges, BTC China.
Industry experts said the rapid rally in bitcoin created a little bubble which is now bursting but the long-term prospects are still positive.

“Once we broke through the nominal all-time high, liquidity dried up – no shorts, no sellers, which means a volatile little bubble formed quickly,” Peter Smith, chief executive of bitcoin wallet Blockchain, told CNBC by email.

“We are seeing the effects of that now. It’s still fairly thin trading volume though. I expect the market will find a floor and stabilize somewhere in the $850 to $1,000 range, but we’ll see.”

Wild swings in bitcoin’s price are not unusual and volatility is a characteristic of the virtual currency.

Yuan rise behind bitcoin fall?

CNBC recently outlined the reason behind the latest rally in bitcoin. One key reason has been the recent devaluation of the yuan as well as the threat of capital controls across many countries. The majority of bitcoin trade comes out of China so it has a big influence.

But on Thursday, the yuan rose against the dollar. The reason behind this was a sell-off in the dollar due to uncertainty around the future of U.S. Federal Reserve rate hikes, as well as state intervention by China in its currency. The rise in the yuan led to a fall in bitcoin.

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