Why did the Price of Bitcoin Plummet?

Why did the Price of Bitcoin Plummet?

What’s been happening to the price of bitcoin in the last 24 hours? Well for the risk-averse it’s been ‘crashing’. Bitcoin in the last day is down from a high around US$2,750 to US$2,300 at the time of writing.

Around 12 June it was trading at US$3,000. In those last three days that makes for a fall of 23.3%.

By the time you read this is could be lower still…maybe even below $2,000!

Or it might not be.

But 23.3% in a couple of days? Wow, that’s a pretty hefty fall.

Mainstream media all over the world is now reporting the crashing price of bitcoin. And we can hear the chorus of naysayers proclaiming, ‘This is it! The bubble has burst, this is the end of bitcoin and this cryptocurrency fad.’

If you happen to be in that camp then you clearly miss the point to what this is all about. But that’s OK; we’ll help educate you. We’ll help convert you to a believer…

For a start, this is pretty common fare for bitcoin. The reason for last night’s fall is because that’s how bitcoin’s price has fluctuated for years. It’s same old, same old.

It’s a high-risk, early stage, volatile new asset class. I could go back to 2010, 2011, 2012, 2013, 2014 or 2015 to give you examples of major falls in price. But I won’t. Instead I’ll just show you in the last year how many times bitcoin has seen price ‘corrections’ bigger than 23.3%.

  • On 18 June 2016 Bitcoin was worth US$777.74. By 23 June it was worth US$758.49. That’s a 27.6% fall.
  • On 5 January 2017 Bitcoin was worth US$1,190.78. By 12 January it was worth US$758.96. That’s a 36.2% fall.
  • On 16 March 2017 Bitcoin was worth US$1,256.12. By 25 March it was worth US$907.26. That’s a 27.7% fall.
  • On 25 May 2017 Bitcoin was worth US$2,757.37. By 27 May it was worth US$1,914.67. That’s a 30.56% fall.

What does this tell us about the recent falls? Everything. It tells us that you shouldn’t be too concerned. In fact, we think it’s just another buying opportunity.

After every major fall bitcoin has then shot up to higher highs. Until the next major fall. And then higher highs. And then another fall. Yet over the last year it continued to outperform any other asset class in the world.

And what about the ‘next bitcoin’?

And the price of Ethereum? The cryptocurrency people call ‘the next bitcoin’? Well its price falls are just as bad. The price of Ether (Ethereum’s token) is mainly exchangeable with bitcoin. Hence when bitcoin falls, the price of Ether falls too. But if you look at the actual rate of Ether per bitcoin, it’s not as bad.

Last night around 0.14 bitcoin would buy you one Ether. At the time of writing it’s now around 0.13 bitcoin to secure you one Ether.

But the uneducated simply look at the price of Ether against fiat currency. And calling it ‘the next bitcoin’ really isn’t all that accurate if you don’t know what you’re talking about.

For a start Ether isn’t a ‘currency’. So it will never be like bitcoin in that sense. Ether is a ‘fuel’. It’s an energy source. It helps power the Ethereum blockchain and smart contracts. Bitcoin has the intention of being useable in the real world as a currency. Ethereum has the intention of being the energy source of the Ethereum network — like oil.

And if you think more about it like that, you start to see its potential.

Ask yourself, how was real wealth built back in the early 1900s? When oil was the most important commodity in the world, who really took all the wealth? The Saudis are the most obvious answer. That’s because they owned all the land that had all the world’s major oil reserves.

Well, imagine having a chance to own that oil today. You don’t need to be a Saudi sheik to get a crack at it, either. You can be an everyday person with the open mindedness to see the future.

And that future is Ethereum. As its network grows and there are more real-world use cases for it, the value of the Ether that powers it will increase.

Talk about oil wealth in the 20th century — talk about Ethereum wealth in the 21st.

At least that’s the view we take on it all.

Jens and Bill hate it, but they just don’t get it

But this future isn’t going to be a walk in the park. One of the core principles of cryptocurrency is its decentralised nature. That means it’s free from central bank interference and government control.

This is what makes cryptocurrency so appealing. However, this does not please central banks or governments. Cryptocurrency is a threat to the power and control of these centralised powers.

And that’s exactly why central banks and governments want a bigger say in how cryptocurrency works.

Jens Weidmann is the head of the Central Bank in Germany, the Bundesbank. And Jens doesn’t like bitcoin or cryptocurrency. He thinks it will worsen future financial crises. And he blames its decentralised nature. Jens thinks central banks know what’s best for everyone, and he doesn’t like the thought of currencies outside their control.

For a start, Jens must clearly believes there will be another crisis. The fear of a fresh crisis is one reason why there’s already been a flight away from central bank-controlled money and into cryptocurrency. But Jens must not have figured that out yet.

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He thinks that central banks should issue their own cryptocurrency instead. He thinks it’s safer for everyone. In other words Jens actually likes cryptocurrency — just not ones that he and his cronies in the Bundesbank can’t manipulate.

We’re pretty sure Jens missed the memo that people like cryptocurrency because the central bank can’t touch it. They like it because government can’t influence it. They like it because it’s decentralised.

It’s not just Jens who wants to get their grubby mitts on cryptocurrency.

Australian opposition leader Bill Shorten also has grand plans for it. You see, Bill thinks that bitcoin is a safe haven for terrorists. He said on Tuesday,

There are two things we simply do not know enough about to deal with properly—I refer to the use of the digital currency bitcoin and the use of the dark web, a network of untraceable online activities and hidden websites, allowing those who wish to stay in the shadows to remain hidden.’

This is a ploy for the Australian government to spy on and monitor every citizen and their activities. They love to use the threat of ‘terror’ to push the thumb down harder on their citizens.

Australia is fast becoming the ultimate nanny state. They’re the modern form of Big Brother — and it’s another reason why the world is switching to bitcoin and cryptocurrency.

The government can try and stop it. The central banks can try manipulating it. But it’s decentralised. It’s out of their reach. It’s bigger than government. And it’s bigger than the ‘traditional’ financial system.

It’s like nothing else we’ve seen before. And it’s going to be the biggest shake up to traditional wealth and power the world has ever seen.

Regards,
Sam

Sam Volkering
Sam is Editor for Money Morning and it's small-cap and technology analyst. He spends his time hunting down the most exciting stocks on the planets, whether they’re potential-packed volatile small-caps or tech firms transforming our future through cutting-edge technologies. You can find more of Sam’s work over at Australian Small-Cap Investigator, where he shares the best small-cap stocks he finds on the ASX, or at Revolutionary Tech Investor where he reveals the latest breakthrough tech investment he’s discovered. If you’d like to more about Sam’s financial world view and investing philosophy then join him on Google+. It's where he shares investment insight, commentary and ideas that he can't always fit into his regular Money Morning essays.
Sam Volkering is Editor for Money Morning and its small-cap and technology analyst. He’s not interested in boring blue-chip stocks. He’s after Australia’s rising stars — companies whose shares trade for cents on the dollar — and are often shunned by those in the financial services industry. His mission is to make you big money, from small stocks.
If you’d like to learn about the specific companies Sam is recommending you buy for turbo-charged stock returns, take a 30-day trial of his small-cap investment advisory Australian Small-Cap Investigator here. But that’s not where Sam’s talents end. From discovering the Apple 2e and Macintosh in the mid-80s, to the rise and fall of the Mini Disc in the 90s…to building internet apps in the 00s...Sam is an amazing talent at finding new, cutting edge technologies and translating that research into how the future will look — and where the opportunities lie.It’s his job to trawl the world to find, analyse, research and — in the right situation — recommend investments in the world’s most innovative and technologically advanced companies.He recommends the best ones he finds in his breakthrough technology investment service Revolutionary Tech Investor.This revolutionary investment advisory is dedicated to finding the best ways to profit from technological developments across the globe. If the best action is in Australia, Sam will find it. If it’s in Silicon Valley, Frankfurt or Tokyo, Sam will find it there too.To find out more about how Revolutionary Tech Investor can help you profit from breaking developments in the tech world click here to take a 30-day no-obligation trial today. Official websites and financial e-letters Sam writes for: (You can find a list of recent articles written by Sam at the bottom of this page.)

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