Bitcoin price explained: How a single trade crashed the cryptocurrency market

Even for something as notoriously volatile as bitcoin, the cryptocurrency’s recent price fluctuations have been extraordinary.

Its value surged from $4,000 at the start of April to $8,000 by mid May, before yoyo-ing between $7,000 and $8,000 over the last few days.

Cryptocurrency experts have attempted to explain the rollercoaster market, citing a combination of recent good news in the crypto space and short term traders attempting to capitalise on uncertainty.

We’ll tell you what’s true. You can form your own view.

From
15p
€0.18
$0.18
USD 0.27
a day, more exclusives, analysis and extras.

But a recent crash that wiped $1,000 off bitcoin’s value in less than an hour can seemingly be explained by a single trade.

On the morning of Friday, 17 May, the sale of 5,000 bitcoin on the Bitstamp exchange – worth around $40 million at the time of the trade – resulted in a flash crash that wiped more than $10 billion bitcoin’s market capitalisation in just 20 minutes.

leftCreated with Sketch.
rightCreated with Sketch.

1/8 Satoshi Nakamoto creates the first bitcoin block in 2009

On 3 January, 2009, the genesis block of bitcoin appeared. It came less than a year after the pseudonymous creator Satoshi Nakamoto detailed the cryptocurrency in a paper titled ‘Bitcoin: A peer-to-Peer Electronic Cash System’

Reuters

2/8 Bitcoin is used as a currency for the first time

On 22 May, 2010, the first ever real-world bitcoin transaction took place. Lazlo Hanyecz bought two pizzas for 10,000 bitcoins – the equivalent of $90 million at today’s prices

Lazlo Hanyecz

3/8 Silk Road opens for business

Bitcoin soon gained notoriety for its use on the dark web. The Silk Road marketplace, established in 2011, was the first of hundreds of sites to offer illegal drugs and services in exchange for bitcoin

4/8 The first bitcoin ATM appears

On 29 October, 2013, the first ever bitcoin ATM was installed in a coffee shop in Vancouver, Canada. The machine allowed people to exchange bitcoins for cash

REUTERS/Dimitris Michalakis

5/8 The fall of MtGox

The world’s biggest bitcoin exchange, MtGox, filed for bankruptcy in February 2014 after losing almost 750,000 of its customers bitcoins. At the time, this was around 7 per cent of all bitcoins and the market inevitably crashed

Getty Images

6/8 Would the real Satoshi Nakamoto please stand up

In 2015, Australian police raided the home of Craig Wright after the entrepreneur claimed he was Satoshi Nakamoto. He later rescinded the claim

Getty Images

7/8 Bitcoin’s big split

On 1 August, 2017, an unresolvable dispute within the bitcoin community saw the network split. The fork of bitcoin’s underlying blockchain technology spawned a new cryptocurrency: Bitcoin cash

REUTERS

8/8 Bitcoin’s price sky rockets

Towards the end of 2017, the price of bitcoin surged to almost $20,000. This represented a 1,300 per cent increase from its price at the start of the year

Reuters

1/8 Satoshi Nakamoto creates the first bitcoin block in 2009

On 3 January, 2009, the genesis block of bitcoin appeared. It came less than a year after the pseudonymous creator Satoshi Nakamoto detailed the cryptocurrency in a paper titled ‘Bitcoin: A peer-to-Peer Electronic Cash System’

Reuters

2/8 Bitcoin is used as a currency for the first time

On 22 May, 2010, the first ever real-world bitcoin transaction took place. Lazlo Hanyecz bought two pizzas for 10,000 bitcoins – the equivalent of $90 million at today’s prices

Lazlo Hanyecz

3/8 Silk Road opens for business

Bitcoin soon gained notoriety for its use on the dark web. The Silk Road marketplace, established in 2011, was the first of hundreds of sites to offer illegal drugs and services in exchange for bitcoin

4/8 The first bitcoin ATM appears

On 29 October, 2013, the first ever bitcoin ATM was installed in a coffee shop in Vancouver, Canada. The machine allowed people to exchange bitcoins for cash

REUTERS/Dimitris Michalakis

5/8 The fall of MtGox

The world’s biggest bitcoin exchange, MtGox, filed for bankruptcy in February 2014 after losing almost 750,000 of its customers bitcoins. At the time, this was around 7 per cent of all bitcoins and the market inevitably crashed

Getty Images

6/8 Would the real Satoshi Nakamoto please stand up

In 2015, Australian police raided the home of Craig Wright after the entrepreneur claimed he was Satoshi Nakamoto. He later rescinded the claim

Getty Images

7/8 Bitcoin’s big split

On 1 August, 2017, an unresolvable dispute within the bitcoin community saw the network split. The fork of bitcoin’s underlying blockchain technology spawned a new cryptocurrency: Bitcoin cash

REUTERS

8/8 Bitcoin’s price sky rockets

Towards the end of 2017, the price of bitcoin surged to almost $20,000. This represented a 1,300 per cent increase from its price at the start of the year

Reuters

Analysts say the huge impact of this trade illustrates the fundamental issues that still exist for the nascent commodity.

“The bitcoin price is a game for ‘whales’ – the largest traders – to wreck the smaller players,” cryptocurrency author David Gerard wrote in a blogpost analysing the market dip.

“This was a huge dump… This keeps happening, and has done for the past few years – a pile of short or long positions on the price will be blown by someone manipulating the price.

Mr Gerard claims the cryptocurrency market is “rife with insider trading” and that a number of so-called whales “have colluded for years”.

The borderless and semi-anonymous nature of bitcoin means it is difficult to police such instances of market manipulation, while the lack of regulation compared to other commodity markets mean a handful of bad actors are able to exploit it for financial gain.

Bitcoin has fluctuated wildly in price over the last week, shooting up above $8,000 before crashing back below $7,000 (CoinMarketCap)

The Bitstamp exchange launched an investigation into the trade within hours of the crash taking place, though few details were given.

“Our system behaved as designed, processing and fulfilling the client’s order as it was received,” the exchange tweeted.

“We closely examine every event that causes large-scale movement in our order book and have started an immediate case investigation.”

Other cryptocurrency experts claim such market fluctuations should not detract from the underlying value of bitcoin as both an investment asset and a currency.

Ana Bencic, foudner of cryptocurrency firm NextHash, believes the price of bitcoin will continue to rise in the long-term, despite the recent crash.

“Bitcoin has been enjoying firmly positive market sentiment recently, so I am sure that the price will soon recover,” she told The Independent.

“The ease of use, transparency and potential for rapid returns make cryptocurrency investment very attractive.”

The price of bitcoin has been unusually volatile in recent weeks (Getty Images/iStockphoto)

But according to Mr Gerard, it is only a matter of time before similar market manipulation takes place again.

“The market’s structure is terrible, trading on the exchanges is thin, and all the incentives are still there,” he wrote.

“Anyone who claims the bitcoin price is in any way organic, or follows real-world events, is simply talking nonsense. We’ve seen how it works, live in action, in front of us.”

Read More

Did you like this?
Tip Cryptos UK with Cryptocurrency

Donate Bitcoin to Cryptos UK

Scan to Donate Bitcoin to Cryptos UK
Scan the QR code or copy the address below into your wallet to send some bitcoin:

Donate Bitcoin Cash to Cryptos UK

Scan to Donate Bitcoin Cash to Cryptos UK
Scan the QR code or copy the address below into your wallet to send bitcoin:

Donate Ethereum to Cryptos UK

Scan to Donate Ethereum to Cryptos UK
Scan the QR code or copy the address below into your wallet to send some Ether:

Donate Litecoin to Cryptos UK

Scan to Donate Litecoin to Cryptos UK
Scan the QR code or copy the address below into your wallet to send some Litecoin:

Donate Monero to Cryptos UK

Scan to Donate Monero to Cryptos UK
Scan the QR code or copy the address below into your wallet to send some Monero:

Donate ZCash to Cryptos UK

Scan to Donate ZCash to Cryptos UK
Scan the QR code or copy the address below into your wallet to send some ZCash:

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.