Prices of cryptocurrencies have fluctuated wildly in the days before Christmas. Bitcoin hit an all-time high of nearly $20,000 earlier this week before falling at one point on Friday to below $11,000. At the time of writing, Bitcoin was trading at around $13,500. Bitcoin wasn’t the only cryptocurrency to be hit on Friday, as most cryptocurrencies experienced similar plunges, wiping out anywhere from a quarter to a third of overall cryptocurrency market capitalization.
Check out the latest price of bitcoin
Some possible reasons for the plunge include:
1. The Christmas holiday coming up means reduced trading activity across financial markets. That could mean a lower number of cryptocurrency buyers and, with so many people looking to lock in gains at high prices, more demand to sell rather than hold cryptocurrencies. That would put downward pressure on cryptocurrency prices.
2. December 31 is the end of the quarter, the end of the calendar year, and the end of many tax years. That means that companies and individuals are undertaking a flurry of activity to get their financial books in order before January 1. It’s not unusual to see drops in gold prices towards the end of the year as traders unwind positions to get their financial statements in order to make end of the year reports. Cryptocurrencies could be seeing some of that unwinding as well.
3. Litecoin founder Charlie Lee recently cashed out his entire holdings of Litecoin, citing a conflict of interest. He obviously made out well, given Litecoin’s tremendous gains this year. But he also had recently warned of a cryptocurrency bubble. Perhaps some short-term traders have taken his exit as sign to get out too.
4. Coinbase recently suspended Bitcoin Cash trading, citing suspicions of insider trading. Bitcoin Cash had seen a major price jump in recent weeks, as many cryptocurrency veterans see it as one of the strongest competitors to Bitcoin. But with suspicion of insider trading and Coinbase then canceling all Bitcoin Cash transactions, that could have caused some unease among cryptocurrency traders.
This price volatility is still indicative of an immature, thinly traded market. Events that would have minimal repercussions in more mature financial markets cause outsized swings in Bitcoin and other cryptocurrencies. For those determined to hold cryptocurrencies for the long haul, this week’s price volatility is not abnormal. When investing in cryptocurrencies it is always more important to think about the long term rather than to focus on short-term gains or losses.