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A Bitcoin Selloff Brings Down All Cryptocurrencies With It
After months of gains that pushed it up to record highs a week ago, bitcoin has fallen by 27% since Monday as investors began selling off the cryptocurrency, as the Wall Street Journal‘s Paul Vigna reports.
Before its dip, bitcoin had surged past the $3,000 mark on Monday through significant inflows driven by two main factors, according to the Journal: New rules in Japan enacted on April 1 that established the digital currency as a legitimate payment method and the increased popularity of fundraising through “initial coin offerings.”
Once Japan’s policies on bitcoin went into effect, money poured into the currency so that the “bitcoin-yen trading pair quickly became the second largest in volume terms, behind the bitcoin-dollar,” Vigna writes. “Trading also picked up in South Korea, with the bitcoin-won pair becoming the third largest.”
This influx of new money fueled the surge. From April 1 through Monday, bitcoin’s price tripled in what was a manic rally even by its own standards. It wasn’t just bitcoin. The new money was coming in at the same time as a new kind of investment was emerging – the initial coin offering. A cross between crowd-funding and standard public offerings, these new assets were tied to startups and services, like the online betting site Gnosis, which raised about $12 million dollars, in 12 minutes. A firm named Bancor this week said it raised $140 million.
Despite the surge for bitcoin, the Journal speculated last week that a selloff was likely imminent for the volatile currency. In fact, bitcoin has gone through 35 bear markets since 2010, according to the Journal.
But this week’s selloff of bitcoin actually resulted in a decline across the board for cryptocurrencies, as Vigna notes. “The top 40 cryptocurrencies tracked by the website Cryptocurrency Market Capitalizations were all down on Thursday,” he writes. “Ethereum was down 16% at $313, after trading above $400 earlier this week. Ripple was down 12%, ethereum classic was down 14%, litecoin was down 7%.”
This latest selloff for bitcoin has renewed a debate that has been raging for a couple of years now, Vigna writes.
While the selloff was expected by many, there is a larger issue at play as well – the possibility that bitcoin may split in two over a debate about network expansion. In recent days, a number of players in the industry, including a major mining company called BitMain, have raised the prospect of “forking” bitcoin’s code, creating two nearly identical versions of the same program. This would split bitcoin between backers of a slower, low-volume network, and one that could handle more transactions at a faster clip.
Citing data from CoinMarketCap, the Journal notes that bitcoin now has a total market value of $46 billion, up from $15.3 billion on Dec. 31, 2016. This is still a drop in the bucket compared to U.S. currency, which has $1.5 trillion in circulation.
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