Bitcoin rose to over $11,600 in trading Monday before falling back on Tuesday. Cryptocurrency prices overall had been buoyed by the surging price of XRP (XRP), which had risen based on rumors that Coinbase might begin supporting it. Those rumors were quashed by Coinbase, resulting in a drop in XRP’s price that dragged many other cryptocurrencies along with it. Coinbase currently offers support for purchasing Bitcoin, Litecoin, and Ethereum.
Bitcoin prices may also have been affected by reports that the US government plans to sell holdings of Bitcoin that it has seized. Over 2,170 bitcoins that the US Marshals Service has seized “in connection with various federal criminal, civil and administrative cases” will be auctioned on March 19. Potential bidders will be required to register with the Marshals Service and provide a $200,000 deposit to participate. Naturally this excludes a significant number of potential bidders, which might result in a lower price realized at auction. That might provide the winning bidder with an arbitrage opportunity to buy low at the auction and sell high on an exchange. The looming sale could put some short-term pressure on Bitcoin’s price until those bitcoins change hands.
Also putting some pressure on Bitcoin prices is the fact that Bitcoin trading volumes are significantly lower than they have been over the past several months. In fact, Bitcoin trading volumes seem to have about halved from their high in December, falling to two-year lows. That’s great news for people who want to use Bitcoin, as transaction fees have similarly fallen. But that also means that large movements such as the US Marshals Bitcoin sale will have a larger impact on Bitcoin’s price.
The low trading volume also means that a larger number of people are holding on to their Bitcoin assets, waiting for further price appreciation. That could help explain why Bitcoin’s price has traded in such a narrow band for the past several weeks. Every time Bitcoin drops towards $10,000 buyers see it as a buying opportunity. Once it approaches $12,000 they see it as a selling opportunity. Without firm prospects for a breakout above $12,000, more Bitcoin investors are holding on to their coins until the next big price increase.