Explainer: Why exactly has the value of Bitcoin dropped?

The crypto-currency Bitcoin has suffered a shaky start to the new year, reporting major losses in value for the month of January.

On Tuesday, the online currency lost more than a quarter of its worth on the market and plummeted 26%. In fact, they weren’t the only ones that suffered. Competitors Etherum and Ripple also saw their market value fluctuate wildly.

So what’s got everyone so spooked? Heralded as the next big thing in 2017, could the bubble be bursting before it’s even taken flight?

What is bitcoin?

Bitcoin is a digital currency that can be transferred from one electronic device to another. It’s like sending money via email. It’s completely decentralised, meaning that there are no banks involved and no charges for sending or transferring money.

Current Bitcoin value

One Bitcoin is currently worth around $11,000 dollars (R135,000). But it was trading at more than $13,000 (R160,000) at the start of the week. At one point on Tuesday, the value dipped below $10,000 (R123,000) and caused investors to ponder what they should do with their Bitcoin savings.

Why has the value of Bitcoin dropped?

There are three main reasons we’ve seen the crypto-currency drop so sharply:

1) Government clampdowns

With Bitcoin being decentralised and therefore not regulated by any country, it’s spooked a number of global powerhouses. South Korea’s Finance Minister Kim Dong-yeon has reiterated his calls for ‘rational regulation’ on the market.

China is also said to be limiting the amount of Bitcoin trading their citizens can undertake. They will be putting a serious squeeze on apps and websites that allow people to buy into the digital bucks.

In America, BitConnect (a trading site) has already received two cease-and-desist letters from the Texas State Securities Board and North Carolina Secretary of State Division ‘for the unauthorized sale of securities’. There’s no doubt government are driving the price down with their reactions.

2) People buying over December

Now, what do you buy someone for Christmas? This year, it seems like woolly jumpers and novelty socks have been traded in for something a little more worthwhile.

The number of people buying Bitcoin soared over the holiday period. Both due to the spirit of goodwill, and those who received monetary bonuses making their first steps into crypto-currency investment. The surge drove the value down as more people began gradually taking a slice of the pie.

3) Welcome to investment 101

It’s just the way it is. Investment is a crazy, wild ride that requires you to have some serious stones. Value often fluctuates, markets often plummet, and it’s part and parcel of putting your money into what’s essentially a business venture.

Such is the fickle nature of economics, Bitcoin has already started its ascent back up towards the $13,000 mark. Reports of the crypto-currencies death have been greatly exaggerated.

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