The price of bitcoin on the CoinDesk USD Bitcoin Price Index (BPI) declined today from a near-open high of $455.24 to a low of $405.72 at 19:35 UTC, before eventually recovering to a press-time value of $421.42.
Prices were similarly affected on the CoinDesk CNY Bitcoin Price Index, which hit a high of ¥2,824.17, before falling 7% to a daily low of ¥2,517.74.
The turbulent day is the latest blow to the price of bitcoin, which has been in unsteady decline since July. Then, optimism was high New York’s proposed bitcoin regulations would usher in a new era of legitimacy for bitcoin businesses, however, a reversal of this sentiment has since given way to concerns about overall merchant bitcoin adoption and industrial mining, and their effects on the market.
Larger arguments aside, Raffael Danielli, who runs quantitative analysis blog Matlab Trading, sees the day’s decline as the result of protective and pragmatic maneuvers by the market’s many more active traders.
Danielli told CoinDesk:
“I think today was more of a technical move. Many traders probably had $450 as their lower bound exit point, and so they got out.”
While straightforward, the explanation is just one of many that proliferated throughout the bitcoin community during the day’s trading.
OTC and miner trading
The day’s price action provided additional fuel to the ongoing debate over whether the more widespread merchant adoption of bitcoin has lead to a weakening of demand in bitcoin’s markets.
Payza business consultant Charlie Shrem took to Reddit to rebuff this theory, asserting that since much of this selling happens outside major exchanges, or over the counter (OTC) where exchange prices are used as a guide, this trading has little impact on the listing price on major order books.
Speaking to CoinDesk, Tim Swanson, author the new book The Anatomy of a Money-like Informational Commodity, offered an opposing view, asserting:
“That is what we are seeing now – it may not matter how many people are ‘buying off-chain’ or ‘off-market’ because no one wants to lose money.”
Swanson went on to suggest that OTC traders may be weakening buying pressure, but that other factors should not be discounted. For instance, he cited the need for bitcoin miners to sell bitcoins at high prices to support their operations, and similar recent observations from cryptonomics writer Robert Sams.
“[Bitcoin] is only as valuable as another party is willing to pay for it,” he added as a reminder.
Merchant market affects
Danielli suggested that merchant adoption may indeed be having an effect on the market, an opinion that is now widely debated in the community.
These market observers point to the fact that though more merchants are accepting bitcoin payments, they are not holding these funds in bitcoin. Thus, they argue, the market is not attracting enough buyers to absorb these bitcoins on the open market.
However, Danielli took this argument a step further, suggesting that this influence is measurable when comparing bitcoin to the second most popular cryptocurrency, litecoin.
For example, he pointed to the difference between performance in the bitcoin and litecoin markets, noting that when bitcoin had fallen 7.5% during the day’s trading, litecoin had declined only 5%.
Cautioning that his observations were only speculation, he added:
“Given that those two coins are mostly the same (professional miners, increasing difficulty, ability to short, available on many exchanges) except that bitcoin can be more easily spend relative to litecoin you could say that merchants might account for around 2.5 percentage points of today’s drop with miners and traders sharing the other 5 percentage point.”
Danielli added that he believes merchant adoption is positive for bitcoin’s long-term price performance, but that given the current general downward trend, it may be detrimental near term.
Further price weakening predicted
In the absence of any larger, positive news, Danielli and Swanson cautioned against speculative answers to the price decline, but suggested that all factors, as well as the perception of these factors, were contributing to the overall down trend.
Danielli added that bearish sentiment could continue, especially as the calendar advances toward the anniversaries of bitcoin’s 2013 highs.
“Year-over-year we are still up,” he said. “It will interesting to see what happens around November when year-over-year might turn negative.”
An informal poll on Reddit suggested this sentiment persisted among traders, with a leading 28% reporting they believe bitcoin’s price will decline to the $350–$400 range in the coming weeks.
Blackboard image via Shutterstock