(December 22)At 11 a.m. Eastern Time today, December 22, Coinbase announced that all buys and sells had been temporarily disabled. This is the second time in two days that the exchange temporarily disabled buys and sells.
At just before 6 PM Thursday Coinbase temporarily disabled buying and selling but was able to resolve the issue within 15 minutes.
Bitcoin's big drop
The service interruption today came as the price of bitcoin fell below $11,000 briefly. It is down 44 percent from its record high last Sunday.
Last Sunday bitcoin established a new record high more than $19,800. On Thursday, it traded at around $15,500 for much of the day but then in the afternoon a selloff developed that gathered steam over the night. Friday morning it set a low of $10,400 but by the afternoon recovererd some to $13,100 Friday afternoon.
In just five days bitcoin lost 47 percent of its value from its high about $9,400. In just one hour Friday morning bitcoin lost a thousand dollars.
Alex Sunnarborg, a founding partner of the cryptofund Tetras Capital said in an email:"I would say the drop in bitcoin is a result of the massive new inflows of retail investors who are relatively 'weak hands' and more prone to sell at the sight of falling prices than the capital that has been in the system for a while that has a longer term outlook."
It could be that given the high prices some big players decided to selloff at a huge profit and then buy back in at a price thousands of dollars less than they paid. Perhaps there are some short sellers as well.
Bitcoin futures also declined significantly
There could have been short selling on the futures exchanges as well as investors bet on a drop in price.
Tne new CME bitcoin January futures managed to reach "limit down" as they fell nearly 20 percent to $12,265 in early morning trading Friday. They recovered slightly to $12,750 later but trading was still going on.
The earlier futures contracts offered by CBOE on December 10 also plunged down to $12,050 as there too the price volatility caused a brief halt in trading.
Bitcoin offshoot and competitor bitcoin cash also crashes
Bitcoin cash had just recently been added to the roster of the Coinbase exchange. The listing caused a huge rise in the price of bitcoin cash and a drop in the price of bitcoin as discussed in a Digital Journal article at the time.
After reaching a new high over $4,000 just two days ago the price fell back a full 40 percent to $1,873 on Friday but had recovered to trade near $2,500 by the early afternoon.
While these drops seem steep, no doubt some analysts will see them as a needed correction and perhaps even a sign that there will be a period of consolidation before any further rise. It may be that some newcomers are now panic selling trying to save some of their investment.
Bitcoin is still well up over its price at the beginning of the year, more than 1,300 percent. Bitcoin cash is also up 380 percent from when it was listed on August 1. This probably does not provide much solace for those who jumped in recently and bought the coins near their peak prices.
Jamie Lee founder of litecoin sells off his holdings
Many have warned of the risk of investing in crypto currencies. Jamie Lee founder of litecoin warned that anyone buying litecoin should do so only if they were ready to lose all their money. Lee just last Wednesday sold off all his litecoin. He might have been ready to lose all his money but I imagine he collected a tidy sum after selling his coin.
Litecoin is a competitor of bitcoin and had been rising in price lately. Just shortly before Lee sold out it had risen 8,000 percent this year.
Sell off of bitcoin was inevitable
That there was a large drop in bitcoin's price is hardly surprising. What is surprising is that it has come so late a many investors continued to hold their coin even after having made huge profits.
Benjamin Roberts, CEO of Citizen Hex a start-up based on the secoond largest crypto coin etherium (ether) said: "Investors were sitting on such significant gains that a correction was inevitable. These markets are driven in the short term by word-of-mouth adoption and profit-taking, and in the long term by the increasing utility of blockchain tech."
Problems at Coinbase
Coinbase is the leading US exchange and platform for trading major cryptocurrencies. Unitl last Tuesday it traded only three major currrencies, bitcoin the largest, etherium second largest and litecoin.
For months Coinbase had been saying that it would start allowing for withdrawing of the bitcoin offshoot bitcoin cash as of January 1, 2018. Instead it suddenly announced it would launch trading in bitcoin cash with full support.
Some think that there may have been insider trading involved before the launch and as a recent Digital Journal article reports Coinbase is carrying out an investigation.
With a huge influx of new customers, it is hardly surprising that social media sites Reddit and Twitter report that some customers are having trouble completing transactions smoothly. The company admitted Friday that high transaction volumes were causing delays in wire transfers resulting in wire deposits being delayed up to 5 business days.
South Korean and Japanese investment in cryptocurrencies slowing.
Asian investors especially from South Korea and Japan have helped inflate cryptocurrecy prices. However, China has clamped down on the market banning initial coin offerings (ICOs) and also closing cryptocurrency exchanges at least temporarily. The result has been that South Korea and Japan have dominated trading volumes and often prices are higher than on Coinbase.
One lesser South Korean exchange Youbit was hacked recently for a second time and lost 17 percent of its assets. It subsequently filed for bankruptcy. There is an investigation to see if North Korea was involved. It has been blamed for other hacks.
The Governor of the Bank of Japan said at a recent media conference that the recent surge in bitcoin prices was abnormal
However, Joe DiPasquale founder of the cryptofund BitBull Capital said: "These don't concern me for the long-term because we've seen more and greater issues in the past. Right now people are biding their time until the bottom is felt. It is a buying opportunity, perhaps in the next day, but you have to see where support is reached to make that decision."
It remains to be seen whether enough investors see this situation as a buying opportunity or whether they will simply wait for a further decline in the price of bitcoin and other cryptocurrencies.
As I ready this for posting , bitcoin has recovered considerably trading at about $14,050 and appears to be trending upward at around 1:30 AM UTC. December 23rd. Perhaps many do see this as a buying opportunity.
Previously published in Digital Journal
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