Bitcoin price jumped from 1000$ to 19.800$ in 2017 creating ‘gold rush’ for investors. However, the price since then has slumped down from 19.200$ to 10.000$ during one month starting off 20th December until 23rd of January, 2018.
Currently, it is trading on average 10.500$ according to the World Coin Index.
But what are reasons have led to the massive ‘corrections’?
Before getting into the article, I would like to mention this: bitcoins are similar to Mustang horses (stray horses), bitcoins flourish when there is no regulation. When it appears, bitcoins crash straightaway.
South Korea ‘ban’
When it comes to trading bitcoins or any other cryptocurrencies, South Korea, which accounts for 15% of the whole market (Coinhills.com), comes to our minds.
South Korea warned on 28th of Dec. 2017 that it may shut down some cryptocurrency exchanges, UK Business Insider’s report.
After the warning, bitcoin price went down from 15.897$ to 13.943$ according to the World Coin Index.
On the same day, a petition was created to the Blue House, the South Korean government, with a title: “Against the regulation of virtual currency. Has the government ever dreamed a happy dream for the people?” This petition has gained 224.503 signatures so far, 22nd Jan.
On 11th of January, the South Korean Justice Minister, Park San-ki, has announced that Korea was ‘preparing a bill’ to ban trading bitcoins and cryptocurrencies on domestic exchanges after ‘enough discussion’ with other government financial bodies and regulators, Reuters has reported.
Immediately after the statement of the Minister of Justice was released, the Ministry of Finance and Strategy did not support or agree with ‘the decision’.
Eventually, South Korea declared the decision was not ‘finalized’.
All of these political-economic instabilities caused loss of bitcoin values. Bitcoin is highly volatile cryptocurrency and sensitive towards political and economic events.
China’s crackdown on ‘cryptomining’
China is well-known for its innovation and technology. However, when it comes to bitcoins or cryptocurrencies, trading them is not ‘shiny’ as we might think it is.
In the mid of Sep. 2017, the Chinese government started to shut down Beijing’s cryptocurrency exchanges creating panic for Chinese investors.
The government announced: “all trading exchanges must by midnight of Sep. 15, 2017 publish a notice to make clear when they will stop all cryptocurrency trading and announce a stop to new user registrations”, Fortune’s report.
As a result of it, BTCCHina, one of the biggest cryptoexchanges, has announced its closure due to restrictions. Additionally, other small exchanges like ViaBTC, YoBTC, and Yunbi announced similar closures, Fortune has reported.
The price of bitcoin went down 5% since the government crackdown. But bitcoin values had recovered in a couple of days.
According to a study conducted by the University of Cambridge, it is estimated that 58% of ‘bitcoin mining’ takes place in China, ExtremeTech report. It means that China exports more than half of bitcoin supplies to the market.
According to the ExtremeTech report, Bitcoin mining uses as much as electricity as entire Morocco or slightly less than Bulgaria.
Sara Hsu, a contributor at Forbes, has reported that “Bitcoin mining is estimated to use up to 4 gigawatts of electricity, equivalent to three nuclear reactors’ productions levels.”
The more bitcoins are ‘mined’, it takes more and more electricity. According to the Coin Market Cap, 16.820.812 bitcoins have been mined and the maximum supply for bitcoins is 21 million.
Considering all above-mentioned facts about China’s role in bitcoins, the government started to crack down on bitcoin ‘mining’ stating that it consumes electricity on large scale.
After the China’s ‘concern’ about bitcoin mining, the price for bitcoin has lost 2000$ of its value within a night, 16th of January 2018.
China had tried to manipulate bitcoin prices in September by closing cryptoexchanges, But it did not work. Now, China uses another way to influence on bitcoin by stopping bitcoin mining.
Why are governments ‘concerned’ with cryptocurrencies?
After the 2008 World Financial Crisis, people lost their trust on banks and financial regulators. In 2009, an anonymous person or a group of people called Satoshi Nakomoto, has introduced a new way of financial transaction, “peer to peer”.
Bitcoin uses a platform called Blockchain, which holds all transactions as an open source so that everyone can access to it. The entire platform is all about codes and anonymity, no ids and no documents are required.
Considering the fact that bitcoin is ‘decentralized’ currency, which does not need any middlemen like banks or governments, cryptocurrencies are the number one threat to the Wall Street and big banks.
Additionally, governments claim that bitcoins and other virtual currencies can be used for illegal acts like trading drugs, weapons or supporting terrorism. The Federal Bureau of Investigations (FBI) or any other security bodies cannot track criminals if bitcoins are used.
In 2011, Silk Road website was launched which used primarily bitcoins for transactions. The site was created to ‘bridge the gap’ between Asia and West through trading. However, it became a heaven for drug dealers and criminals where they could trade weapons and drugs using bitcoins.
In 2013, the founder of the website, Ross Ulbricht, also known under the pseudonym as “Dread Pirate Roberts” was indicted by the FBI on charge of money laundering, computer hacking, and conspiracy to traffic narcotics. And the site was shut down by the authorities.