As Crush The Street’s own Luke Dodwell reported, bitcoin is “on life support.” After spending months rangebound in the $6,000 territory, the king of cryptocurrencies first fell to $5,000, and then below this key psychological support line. At time of writing, the bitcoin fallout has erased about three-quarters of valuation from its all-time high.
Technically, the situation doesn’t look great. Indeed, I’d use the term “ominous.” The $6,400 level represented reliable, long-term support. If the crypto-coin can’t break convincingly past the $5,000 level, the next level of support lies around $4,200 to $4,300. That would put a hurting on investors who got in late during the game, perhaps inspiring another panicked selloff.
Adding to the woes surrounding the bitcoin fallout, other cryptocurrencies, particularly Ripple (XRP) have performed comparatively well. Dodwell writes that so far in 2018, Ripple is down roughly 4% to 5%. This dynamic should more than likely inspire crypto investors to jump onboard the Ripple bandwagon. Why stake your hard-earned money anywhere else?
Therefore, we can expect at least the possibility that the bitcoin fallout will worsen. However, what’s actually causing this extreme volatility?
The Bitcoin Fallout May Originate from an Unlikely Source
Talk to most cryptocurrency advocates, and they’ll likely blame the bitcoin fallout on ignorance. Specifically, weak-handed investors overreact to certain news items – like the ongoing SEC fiasco – and panic out of their position. This action inspires other weak-hands to follow suit.
But just how many of these shaky-kneed individuals exist? I think we can safely assume that after the crypto market’s rapid fall from their end-of-year 2017 highs, most weak-hands have left the room. If we see sharp declines right now, we can’t blame ignorant newcomers.
I don’t see the logic. The real bitcoin fallout occurred when it briefly flirted with $20,000 and dropped to the high $6,000 range. That’s roughly a two-thirds loss. A drop from $6,400 to $4,800 is a 25% loss: steep, yes, but not necessarily panic-inducing. Those who have stuck around this far aren’t likely to panic.
So who is behind the bitcoin fallout? My best guess is Uncle Sam. No, not your Uncle Sam, but the federal government.
Over the years in essentially clandestine operations, the Justice Department has acquired cryptocurrencies through law-enforcement investigations. Sometimes, the feds sell their “blood diamonds,” but we don’t really know what’s going on. The government doesn’t exactly disclose their bitcoin positions, so actual figures are nearly impossible to determine.
That said, it’s not out of the question that the feds have dumped some of their holdings, sparking various corrections. In fact, the blockchain is a perfect platform for all government agencies: they’re not accountable to their constituents, and the blockchain facilitates anonymity.
And since it’s not their money to begin with, the feds have very little incentive to act rationally.