Bitcoin: The reasons for the price collapse for several weeks

For the first time since October, Bitcoin briefly fell below the 3216207 . dollars on 01 last January. The cryptocurrency had reached a new all-time high by crossing the bar of 69.000 dollars le 10 last November. There are several reasons for this decline.

A natural “correction”

Why the price of Bitcoin has collapsed in recent days – GeekoAfter a growth period of several weeks, the cryptocurrencies generally undergo what is known in the jargon as a “correction”. They reach a peak, a price set by many traders at which many investors have chosen to set a sell order to take their profit. As the amount of sales exceeds that of purchases, the price retracts and falls by several percent in a few days, dragging with it the prices of all other cryptocurrencies. It then stabilizes naturally when demand meets supply, before resuming its flight. Once the 40.001 dollars reached, on Bitcoin has undergone one of these corrections. Logically, its price should have stabilized around 40.001 dollars, but the progression continued.

The Importance of Patterns

Most traders rely on trading patterns to encode their buy orders and sales. In the world of cryptocurrencies, these patterns tend to be followed less often than on the stock market. Volatility is more important and above all, cryptocurrencies tend to react more to news. The constant hunt for shorts and longs by the “whales”, those investors who are able to shake the market by selling impressive amounts of Bitcoins, can also have the opposite effect on a given situation. And, in this case, what is emerging on the graph today is enough to scare any amateur trader. The “head and shoulders” – a pattern that represents a head surrounded by two shoulders, usually leads to a steep drop in prices. The schema is not yet completed, which means that it may very well be invalidated. If it were to complete and prices followed the logic of the pattern, Bitcoin could go back to 30.000 dollars. On social networks, many influencers are talking about it. Psychosis leads to a mass effect. And quite naturally, the volumes fall. Who says low purchase volumes, also says greater volatility.

The unstable situation in Kazakhstan

Why the price of Bitcoin has collapsed in recent days – GeekoPhoto credit: AFPNear 20 % of Bitcoin miners are based today at Kazakhstan. Following the ban on cryptocurrency mining in China, many companies specializing in cryptocurrency mining have chosen to settle in Kazakhstan, a country close to China, where energy is generally very inexpensive, given the natural resources of the country.

Several tens of thousands of citizens took to the streets of the country to demonstrate against rising prices and the power in place. Faced with the violence of some demonstrators, the government has chosen to respond in a strong way by deploying soldiers and police in the streets and by cutting off all communication networks in the country. With a direct impact on the mining industry. Information confirmed by the American media CNBC who spoke with a Kazakh miner, who explained that most miners in the country are disabled. A situation that led to an immediate drop in prices.

To better understand the situation, it is necessary to explain how Bitcoin works. Bitcoin mining is an essential process for the survival of cryptocurrency. The machines used in this process are assigned complex mathematical tasks that actually serve to verify every transaction on the network. In the jargon, we measure the efficiency of this network with the “hash rate”. A high hash rate is synonymous with a healthy network. A drop in the rate can cause instability in the market. This is what happened last year when China banned mining on its territory. The ban caused the prices of Bitcoin and other cryptocurrencies to plummet immediately. Kazakhstan of course only has 15 % of the world’s miners. But it’s enough to influence the market and cause prices to fall… This explains the reaction of the price in recent days. The good news is that the market is generally very responsive. Many Western-based mining companies have already signaled their intention to invest more in this technology to take advantage of the crisis. Because conversely, a lower hash rate is synonymous with a bigger “reward” for miners, who are paid for each validated transaction.