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Why is Bitcoin Crashing?

CC0 Public Domain

Bitcoin appreciated more than tenfold in 2017, reaching its peak price of slightly under US$20,000 by the middle of December. However, since then, negative news and nervy investors have caused the price to fall nearly 70% from its peak. At the time of writing, Bitcoin trades at just under US$6,500.

So, what could have caused the sudden drop in price?

Facebook ban on Cryptocurrency advertisements

Last week, Facebook made the unprecedented move of banning all advertisements on cryptocurrency, The sudden interest of digital currencies have led to many scammers trying to take advantage of people’s desire to earn a quick buck from the cryptocurrency boom. They have placed advertisements all over the Internet, including Facebook.

Facebook said that many of the advertisements were either “misleading” or used “deceptive promotional practices”. As part of their responsibility to protect their users, Facebook decided to have all cryptocurrency advertisements, even from legitimate businesses, removed from their site.

Threat of hackers

Last week, it was reported that over $530 million worth of Bitcoins were stolen from the users of Coincheck, a cryptocurrency exchange in Japan. This was just one of the many incidents of hacking.

Another South Korean bitcoin exchange called Youbit had to file for bankruptcy after it was attacked by hackers twice in a few months. In another case, US$70 million was also stolen from NiceHash, a digital currency trading platform in Slovenia.

The multiple incidents of theft and fraud have led to calls for tougher regulations and control of the cryptocurrency market.

India ban digital currency from system

The Indian government has reported that they will prohibit the use of Bitcoin and other digital currencies for payments. In his 2018 budget speech, finance minister Arun Jaitley said that the Government does not consider cryptocurrencies legal tender and will take all measures to eliminate its use in “financing illegitimate activities” or as a payment system.

China has also further clamped down on cryptocurrencies by blocking access to websites that offer cryptocurrency trading services or initial coin offerings (ICOs). China had previously already banned ICOs and shut down some domestic exchanges.

Major credit card issuers ban customers from buying digital currencies with their credit card

Several major credit card issuers are no longer allowing their customers to purchase cryptocurrencies using their credit cards. These include Lloyds Banking Group, Virgin Money in the UK and Bank of America, Citigroup, JP Morgan, Capital One and Discover in the United States.

This is perhaps due to the fact that the banks recognise the risk of customers extending their credit line to the point that they cannot afford if the price of cryptocurrency crashes.

The Foolish conclusion

Cryptocurrencies have had a rollercoaster ride in the last 14 months. The last month has seen a huge sell-off than ever before. In the next few months, as more news unfolds on the regulatory protocol and acceptance of cryptocurrencies worldwide, we might start to get a better idea of the future of Bitcoin and other digital currencies.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.