After a month of sideways price movement around the $10,000 mark, bitcoin’s price suddenly dropped by roughly $1,000 yesterday. Depending on where one marks the start of the selloff — some have argued that it actually began late last week — the drop marks a loss of around 12% of bitcoin’s total value. Other cryptocurrencies saw even more dramatic selloffs, with Bitcoin Cash (BCH) falling nearly 19% and Binance Coin (BNB) falling 15.5%.
Surprisingly, the crash itself doesn’t appear to have an obvious root cause. While rattled day traders and trend-chasing bots likely amplified the situation, it’s not clear at all what the source of the selloff was. As a result, many cryptocurrency analysts, pundits, and reporters have spent the last 24 hours developing theories to explain the falling price in the hopes of gaining some new insight into the situation.
In this post, we’re taking a look at three of the most-talked about theories for yesterday’s selloff.
1. Hashrate collapse: Shortly before the selloff, bitcoin’s network hashrate fell by as much as 40%, suggesting that a major issue was impacting bitcoin miners. One likely explanation for this is the looming increase in the bitcoin network’s difficulty number, which automatically adjusts later this week. Older mining hardware is already on the verge of becoming unprofitable, and a major increase in difficulty could make mining a money-losing venture until the price increases. A last-minute profitability-squeezing firmware update to Antminer’s S9 line — by some estimates, these miners provide 50% of the current network hashpower — may be responsible for the sudden crash in mining activity. This is somewhat likely, as the network hashrate returned to a normal range in a matter of hours.
2. Bakkt underperforms: Much-hyped institutional bitcoin futures trading platform Bakkt officially launched on Monday, only to be met by underwhelming interest from Wall Street. The platform saw a volume of just 71 BTC — about $710,000 — on its opening day. Bitcoin’s price decline roughly correlates with Bakkt’s launch, but it’s not obvious that there is any real connection between the two. Bakkt’s supporters have claimed that bitcoin’s falling price could be the result of new “price discovery” by institutional investors, the platform’s still-low trading volume suggests that something else is likely driving down BTC’s price.
3. Stock market woes: The across-the-board cryptocurrency selloff almost perfectly coincided with a similar selloff on the U.S. stock market. Stocks fell on reports that President Trump was facing an impeachment investigation over reports that he leveraged foreign aid payments to Ukraine to force that country’s leaders to hand over potentially compromising information on likely 2020 rival Joe Biden. The stock market is already in a shaky state for multiple reasons — declining GDP growth, a likely global recession, and the trade war with China — and skittish traders may have decided to liquidate high-risk assets like cryptocurrency once the stock selloff began.