Bitcoin and all other cryptocurrencies witnessed massive price drops the past few days in September 2019. As a matter of fact, this is the fourth time this year Bitcoin sees a price drop in double digits daily. With Bitcoin being a volatile asset, this heavy price drop comes with no surprise to traders and investors in this risky asset class. Of course, when there is blood in the streets, it’s often the best opportunity to buy and add some extra cryptocurrency to your stack. With this in mind, I gathered courage and bought some extra cryptocurrency with my fiat. Also, from experience as a Bitcoin trader, I know that this strategy can be very profitable in the long term. But why Bitcoin dropped double digits this time? In my opinion, there are 4 reasons which had a major impact on this double-digit price drop.
1. Large Bitcoin transfers to cryptocurrency exchanges
With the introduction of Bitcoin and Blockchain technology, all markets are open and transparent. In other words, Bitcoin transactions made on the blockchain can be tracked and traced by anyone in the world. The most common tool for this is the Bitcoin block explorer which gives deep insight in all transaction being made on the Blockchain. As a result, many algorithms and bots are developed which watch the activity and are a helpful tool for investors and traders. A good example is the WhaleAlert Twitter account:
The recent drop in Bitcoin price could be triggered by large transactions from external Bitcoin wallets to Bitcoin wallets on cryptocurrency exchanges. This is what exactly happened according to this post on reddit.
According to this post, $1.2 Billion in total Bitcoin value was being transferred from wallets outside exchanges. In less than an hour, a total of 112K Bitcoins were sent to exchanges. For this reason, many trading bots and other algo’s were triggered resulting in a massive sell-off.
Large Bitcoin transfers the reason why Bitcoin price dropped?
Generally speaking, $1.2 Billion in total Bitcoin value isn’t that much. After all, this amount is less than 1% of the total the market cap of Bitcoin and shouldn’t have such an impact, resulting in a drop of double digits in fiat value. It’s the chain of reaction algo’s and bots caused which could have triggered this sell-off.
2. Sudden drop in BTC hashrate
Next in the list of possible reasons is the very unexpected drop of 40% in BTC hashrate. What is this all about? Let me explain.
Bitcoin’s mining hashrate is a measure of the current amount of computational power expended to mine new blocks—to earn newly minted Bitcoin. Miners crunch these things called hashes, trying to find one that meets a set criteria. At the same time, the computing power expended on doing this secures the Bitcoin blockchain and processes transactions on the network.
BTC Hashrate reason why Bitcoin price dropped?
A higher hash rate means greater competition among miners to validate new blocks; it also increases the number of resources needed for performing a 51% attack, making the network more secure.
Throughout summer, cryptocurrency analysts had argued that the network’s record-breaking streak of all-time hash rate highs was a bullish indicator for the top coin’s price performance.
This “mysterious” drop in hashrate could be another trigger in the double digits drop of Bitcoin. The Bitcoin hashrate is mostly a miners calculation for getting the proper hardware. What makes this drop in hashrate suspicious is that just a few day earlier the total hashrate hit all-time highs.
3. BAKKT derivatives exchange opening
Then there is BAKKT. This new trading platform specialized in derivatives has been announced for “ages” and is supposed to be the gateway for institutional money entering the cryptocurrency markets. New liquidity entering the markets is considered a good thing and will have a big impact on the bitcoin price for sure.
What is BAKKT exactly and why is it important
Bakkt is a Bitcoin futures exchange and digital assets platform founded in 2018 by the Intercontinental Exchange (ICE), the parent company of the New York Stock Exchange (NYSE). In other words, BAKKT is a bitcoin futures trading platform which invests big institutional cash into physical Bitcoins. Meaning, they are actually buying Bitcoin and it will be delivered at a settled date. This is contrary to the CME futures which are artificial.
It’s no coincidence that just a day after this launch of BAKKT bitcoin futures the Bitcoin price dropped $1000. Are the traditional banksters now back in control of this Bitcoin market? I think not, mainly because 50% of the Bitcoins hasn’t moved in a year and HODLING sentiment among early cryptocurrency investors is very strong.
4. Possible correlation with the traditional stock market
Then there is the drop in the stock market which happens at the same time with the Bitcoin price drop of $1000. The picture below shows both markets dropping at the same time.
Are stock markets and the cryptocurrency markets related and the reason why Bitcoin price dropped? In my opinion, there was no correlation and it could be considered a coincidence. In this case, the heavy price drop in the stock markets is caused by Trumps speech at the UN. To enumerate, Trumps speech was supporting ‘patriotism’ and very negative about ‘resisting globalism’. Furthermore, there are rumors about an official impeachment inquiry. Also, this is the first time in the short history of Bitcoin that the Bitcoin price dropped altogether with the stock markets.
As mentioned in point 3 with the launch of the BAKKT futures both markets will have a bigger impact on each other soon. As a result, when there is panic in the stock markets, Bitcoin, seen as the digital gold could be considered as a haven for institutional investors.
September 2019, can be considered as a very important month which had a major impact on the Bitcoin price in short term. The most important event this month was the launch of the BAKKT futures which adds major liquidity to the markets as a whole. Furthermore, there was an unusually high activity with Bitcoin transactions, sending a large amount of Bitcoin to exchange wallets. To summarize, the launch of the BAKKT futures the main reason why Bitcoin price dropped resulting in cryptocurrency markets turning bear again? Only time will tell!
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