The world of cryptocurrencies enjoyed its biggest year yet in 2017 with almost all cryptocurrencies rising to new heights. More and more people started to know what cryptocurrencies are as adoption increased and the value of the different cryptocurrencies rose as well. At the top of all of them was the foremost cryptocurrency to come into existence, Bitcoin. The world’s largest cryptocurrency kept on breaking one record after the other as its price climbed higher and higher until it almost reached the $20,000 mark mid-December 2017.
$20,000 All Time High Short-lived
While it was not all smooth sailing for Bitcoin to almost reach the $20,000 mark and it was marred with volatility, it was still seeing an upward rising graph, however unstable. All of that changed soon after mid-December and 2018 has seen the cryptocurrency perform very badly so far as Bitcoin is struggling to rise to previous heights. Currently trading at $9,410, Bitcoin’s price is barely half of what it was at its best. This sudden in the price of Bitcoin after almost hitting$20,000 seemingly came out of nowhere.
The volatility is something that Bitcoin and other cryptocurrencies are notorious for and the sudden decline in the price of Bitcoin was being attributed to that volatile nature without much to explain but it seems that researchers from the US Federal Reserve might have figured out why Bitcoin saw such a sudden decline in value.
An Economic Letter was released by the Federal Reserve Bank of San Francisco on the 7th of May which talked about the likeliness of the decline that Bitcoin has seen since climbing up to almost $20,000 was due to the launch of Bitcoin futures trading.
The letter said that the quick run up and then the sudden decline in the prices of Bitcoin a week after the launch of Bitcoin futures trading cannot simply just be considered to be a coincidence. The fall in the price of Bitcoin after the launch of futures trading is actually akin to the trading behavior of traditional assets with the introduction of futures in the market.
The reason why Bitcoin saw its price surging and rising so high was because of the optimistic investors who had been consistently showing their faith in Bitcoin and investing more and more into it. With the constant price increase, more optimistic investors were attracted to it and led to the price rising even higher until it reached its all time high of almost $20,000. A week after it hit the all time high mark, Bitcoin saw the introduction of Bitcoin futures trading through California based CBOE.
The only people driving the price increase of Bitcoin were the optimistic investors. With the introduction of Bitcoin futures trading, pessimists were also able to get in on the game. Previously having no manner in which they could short Bitcoin and betting on price decline, the pessimists reveled the new investment opportunity and caused a sudden fall in the day-ahead market for Bitcoin, causing the decline in the price of Bitcoin.
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