A report by CCN.com suggests that the recent plunge in the cryptocurrency market may be due to a large-scale sell-off of bitcoin (BTC) that took place over the weekend. The abrupt sell-off happened on June 10. Because many other cryptocurrencies tend to follow the patterns of the world’s largest coin by market cap, the result was an overnight decline of more than $25 billion in the total cryptocurrency market.
What might have prompted the sell-off? And does this spell longer-term trouble for a cryptocurrency space that has come under increased stress in recent months?
Volume and Demand Caused Trouble
It may be that the explanation for the recent bitcoin sell-off is relatively straightforward: The report suggests that a simple drop in volume and demand might be to blame. Over the weekend, in spite of relative stability in the cryptocurrency space and a short-term optimism in BTC, the price of bitcoin fell without rebounding in the short term. A number of momentum indicators, such as MACD, RSI, and moving averages, suggested an optimistic short-term pattern for bitcoin. Nonetheless, price movement in the cryptocurrency space is subject to extreme shifts related to market conditions.
Last week, BTC appeared to gain short-term upward momentum thanks to buys in recent days. Analysts pointed to the reversal of a downward trend that had seen BTC’s value drop from close to $10,000 to roughly $7,000. A corrective rally brought the price back up toward $7,500 rather than continuing to drop into the $6,000 region.
Unfortunately for the price of BTC, though, investors may have dismissed the importance of daily trading volume. Last week, the daily trade volume of BTC was just half of the volume from a few weeks ago. With demand dropping significantly, a market correction prompted a further plunge. As of this time, BTC is trading at just above $6,737.
Hack May Have Exacerbated Problem
The volume and demand issue may have been intensified by the recent hack of Coinrail, the cryptocurrency exchange based in South Korea. The hack led to a loss of about $40 million in digital tokens. Coinrail accounts for just 5% of the total cryptocurrency trade volume in South Korea, so it is unlikely that the hack prompted a large-scale and worldwide slump in bitcoin and the digital currency space more broadly. However, it may have been one of a number of factors that caused the space to shed value rapidly over the weekend.
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