A respected blockchain and data research firm, Chainalysis, has released a report titled ‘The Great Bitcoin Price Dip: Its Causes and a Way Forward’ explaining the reasons behind the great dip in Bitcoin’s price.
The report gives two major reasons behind the recent price dip, “Regulatory news driving trading volumes and a peak of positive sentiment pushing price; and a lack of fundamentals resulting in herding behavior across increasingly correlated exchanges and cryptocurrencies.” The report tries to explain that investors are like a bunch of herd animals driven by emotions, and when one of the flock gets spooked, the others also get spooked.
What’s the Real Worth of a Bitcoin?
Many cryptonomists have been spending sleepless nights trying to determine a fair value for 1 BTC. The report by Chainalysis has acknowledged this in their report, saying that the cryptocurrency market is still struggling to establish itself on a level with other conventional markets, where investors can easily contextualize price and volume fluctuations.
Traditional markets have an established set of market fundamentals that help investors understand and contextualize price and volume fluctuations. The cryptocurrency world is still figuring out the correct fundamentals to use in situations of massive price volatility,
-Reads part of the Chainalysis report.
The report says that Bitcoin trading is very sensitive to regulatory news, and that prices are driven by sentiments. Chainalysis shows Bitcoin’s trajectory in 2017 to explain its point. Bitcoin is susceptible to regulatory news as it experienced a major sell-off after news that China was planning to ban it. It did, however, make a full recovery within a short span.
The report also suggests that a market correction had to occur to curb the growing Bitcoin mania that was witnessed in the latter half of 2017. According to the report, Google searches were increasing more than the pricem Bitcoin couldn’t maintain the insane upward trajectory and something had to give.
Bitcoin News reports that the Chainalysis report is not surprising to the Bitcoin community. The report findings from across the exchanges are true and interesting. For instance, trading volume across major exchanges became increasingly correlated through December and January, compared with the whole of 2017. This meant that what happened on one exchange would be mirrored almost instantly on another. If one whale got spooked and dumped everyone got spooked.
Bitcoin frenzy reached its peak in December and exchanges experienced a new inflow of Bitcoins as investors were depositing more crypto than they were withdrawing. As a result, supply was becoming higher than the rate of demand, therefore, the high bitcoin prices couldn’t be sustained, Chainalysis notes in their report.
On a positive note though, the report concludes that altcoin prices are highly correlated with the price of Bitcoin. While there are many altcoins and tokens today, the price of Bitcoin determines their prices.
Do you believe Chainalysis’ conclusions are true, or what other aspects do you think have led to Bitcoin’s price dip? Let us know in the comments section.
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