This week on Planet Bitcoin - 28 August 2015

Friday 28 August 2015

Weekly market report and news from Dynacoins, first community-supervised mutual bitcoin fund.

If the first half of August was characterised by tedium in the bitcoin markets, the last fortnight has been anything but boring. The low volume decline we saw, down from $290 at the beginning of the month to $250 ten days ago, suddenly turned into a precipice as the price dropped almost $30 in the space of an hour. After another week of some stability in the low $230s, the real sell-off began; at one point on the 25th bitcoin briefly dipped below $200 for the first time since January.

Weekly chart

This was a dramatic move after so many months of trading comfortably within the $220-300 range. Unlike January, though, there was no flash crash, and certainly no desire to sell down to the $155 range that was the lowest mark in the past 18 months or more. Since then, buyers have brought the price back up to the mid-$220s.

A look at the bigger picture

There’s a lot going on in the world at the moment, and it’s worth taking a look to paint some background. In terms of the global economy, China is now setting the mood. Almost three weeks ago its central bank devalued the Yuan to a three-year low in an attempt to make it more competitive after figures indicated their economy – the second-largest in the world – wasn’t growing at the expected rate. That was China’s Wile E. Coyote moment: the point at which investors realised they were in serious trouble and it was a very, very long way down. Although China’s stock market had been in decline since the beginning of the year, it had been propped up with false hope through a series of interventions by the government. The real crash happened earlier this week as investors, like Roadrunner’s would-be nemesis, finally succumbed to natural forces and started panicking.


China, Bitcoin and Wile E. Coyote have all experienced this feeling recently

Continued uncertainty about the state of China’s economy has caused contagion around the world, with sharp losses and volatile trading on global stock markets. Bitcoin has mirrored that volatility, and at this point in the month some traders will have needed to sell to pay bills if they made losses on the stock markets, though there are further factors at play in this case.

Bitcoin XT

Bitcoin’s own Wile E. Coyote moment came in the form of Bitcoin XT, the controversial 8MB blocksize version of the protocol that was finally launched into the wild on 17 August. The initial drop back to the $220s occurred two days later, before the most recent crunch to $200. It’s possible a single traditionalist whale was disgusted enough to sell off a large chunk of his holdings, playing his part in spooking the markets. And, like the Chinese correction, there has been contagion across almost all of the alts, with some reaching unprecedented lows.

Meanwhile, Bitcoin XT is slowly gathering momentum. Many businesses are holding back to see which way the wind is blowing (Coinbase, for example, have adopted a wait-and-see approach), and will mine on the majority fork when it becomes clear which that is. Others, like BitPay, have come out in public support for the change. If and when others state their preference, most of the rest are likely to fall into line quickly. Support for XT is currently running at around 14 percent of all nodes.

In other news, Ethereum continues to be a popular choice for traders, though volumes are declining – down from over 10,000 BTC daily on Poloniex at its peak to less than 2,000 now. Along with the uncertainty generated by XT, Ethereum has taken liquidity away from the alts, so it’s possible some of this will return in the coming days. Notably absent from the alt markets is China, though with so many small traders nursing heavy losses, that is hardly surprising.

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