This week on Planet Bitcoin - 24 June 2016

Friday 24 June 2016

TL;DR - a major crash, a bounce, and...

After the steep rise of recent weeks, a correction comes as no surprise - but its scale doubtless shocked some traders. Not long after it was followed by a substantial bounce.

Chart

Looking at Bitfinex this week, we can see the market topped $770 (at one point almost touching $790) before experiencing a series of very heavy falls. The low point was $555, representing a 30% crash from the very top. Rough though this seems, it's actually only back to where we were two weeks ago. After a short time around $580, the bounce occurred and, at the time of writing, bitcoin is back up in the $670s.

The trigger for this crash seems to have been Bitfinex itself, with the exchange blaming ‘network issues’ caused by a database migration for downtime that froze trading for several hours. This development came not long after regulators fined Bitfinex $75,000 for ‘offering illegal off-exchange financed retail commodity transactions and failing to register as a futures commission merchant.’

Brexit

Whilst it seems these developments were the catalyst, there is a bigger underlying picture here. The imminent halving of block rewards notwithstanding, bitcoin had been overbought and traders recognised the risks of not booking profits at this point.

Additionally, the UK held its referendum on membership of the EU on Thursday. Over the preceding few days the polls showed a slight movement back towards Remain, and Sterling strengthened against the dollar accordingly. Since one widely predicted effect of ‘Brexit’ was intense economic uncertainty, affecting not just the UK and Europe but global markets, bitcoin may have seemed less attractive as a ‘safe haven’ asset.

In the event, the UK did opt to leave by 52% to 48%. Sterling did crash against the dollar and bitcoin recovered further - both in this instance probably a direct result of the Leave decision. The currency markets will be extremely volatile for some time.

The biggest event in the crypto world was the exploit of the smart contracts in The DAO that allowed hackers to siphon off tens of millions of dollars in ETH, causing The DAO itself to plunge in value and Ethereum to follow as collateral damage. The Ethereum community overwhelmingly supports a soft fork to freeze the stolen funds in their current address to allow a more measured response; a more controversial hard fork to return them to investors is also on the table, though the effects of this on confidence in Ethereum are much debated. Both ETH and DAO experienced huge volatility with these developments, and large amounts of money flowed into and out of them from BTC as traders first panic sold then bought back in. This may well have contributed to bitcoin’s own volatility and volumes too.


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