Possibility Of Bitcoin Falling Below $500 By End 2013

As the Bitcoin proponents reveled when the cryptocurrency reached the $1,000 by taking to social media, opponents and skeptics were quick to start hailing its recent fall as testimony to their belief that it is nothing more than a passing fad. Then there are the conspiracy theorists pointing a finger at China and even questioning whether the recent decline in value is a due to short selling.

Bitcoin has plummeted in recent days, falling below the $700 mark and possibly heading towards $500 – if not lower. Bitcoin has always been volatile. While the value may have fluctuated by as much as 20% to 30% per week, it is now worth almost 50% less than it was just a few days ago. So what is propelling the fall? And why is China being dragged into it?

China Says No To Bitcoin Banks

The Bitcoin crash appears to correlate with an announcement by the People’s Bank of China which some say just fell short of banning Bitcoin. Essentially it stopped all financial institutions from having anything to do with Bitcoin – their products and services cannot be priced in Bitcoin, they cannot buy or sell Bitcoin and not directly or indirectly provide Bitcoin services.

Furthermore Baidu, China’s answer to Google, and China Telecom have stopped accepting Bitcoin payments. These Chinese companies were largely credited for fueling the Bitcoin drive in China which in turn contributed to its recent spike in value. With the Chinese banks being forced to turn its back on Bitcoin and trusted Chinese businesses stepping away from Bitcoin payments, panic seems to have set in.

The question remains whether it is this panic that is driving the decline in Bitcoin value or not. Optimists say that China’s official stance is not all that bad. Forums are abuzz with damage control and some saying that the USA does not understand China’s stance and the benefits of it.

Why The Fall In Value?

The recent events in China may not be the sole cause of fluctuations in Bitcoin price. The reality is that the system is not immune to the myriad of factors that influences the value of fiat money. The moment that Bitcoin became appealing to large corporations and private consumers, it was just as much at risk of fluctuating as any other currency or commodity.

Factor in the lack of a central authority regulating its value and Bitcoin is much more volatile than any fiat currency. But sometimes the simplest of answers may be the most accurate. Supply and demand are the main forces that have propelled Bitcoin prices in recent month. Given the restricted supply of Bitcoin due to the cryptocurrency system, the media hype and subsequent demand saw its soar to new levels.

Speculators played their part as well. And so did economists, celebrities and politicians. Demand grew. Supply was limited. Prices rose. Then the media tide started turning in recent days with China’s stance. Fear set in. Some Bitcoiners started selling fast. The price fell. Whether it will fall below the $500 mark by the year end is uncertain.

What is known is that Bitcoin may be slowly approaching a more accurate market equilibirium price for this point in time. The rise in value was too rapid and while Bitcoin may someday touch the $10,000 or even the $100,000 mark as some predict, it will not be as fast as many speculators hoped. The world is still becoming accustomed to cryptocurrencies like Bitcoin and for today at least, it is not the fantastic investment vehicle that some thought it was.

You may also like...

Leave a Reply