The price of bitcoin fell below $700 on 21st June, dropping more than 10% in an aggressive correction to recent gains.
The decline came just a day after the price surpassed $780, rising to a fresh 28-month high, CoinDesk USD Bitcoin Price Index (BPI) figures reveal. But while this could be viewed as a positive for the digital currency, investors didn't quite see it the same way.
The currency appeared "slightly overbought" after reaching the “high 700s,” according to Arthur Hayes, co-founder and CEO of bitcoin leverage trading platform BitMEX.
To some market observers, the trading outage at Hong Kong-based bitcoin exchange Bitfinex, one of the market's largest exchanges, was seen as the contributing factor that pushed the currency’s decline past $700.
BPI data shows that when the Bitfinex website announced the outage at roughly 9:30 UTC, the digital currency was down approximately 3% for the day. But, by 13:45 UTC, the digital currency had fallen to $649.47, more than 10% below the day’s opening price.
Still, while the outage at a high-profile exchange likely contributed to the day's developments, others described a more complex situation in which key price indicators proved vulnerable to changes in perception.
One such change came in the form of a change in the outlook for the "Brexit", the nickname for the ongoing debate over whether the UK should succeed from the European Union.
According to a poll conducted by market research firm Survation on 17th and 18th June, 45% of British voters want their nation to stay in the EU, while 42% want it to leave, findings that signified that sentiment seems to have shifted in favor of staying in the EU.
The drop in the number of respondents favoring a Brexit helped more traditional investments see a "relief rally," Hayes told CoinDesk.
While he maintained that bitcoin prices have benefited lately from heightened fears about the “global macroeconomic outlook,” these concerns may have softened somewhat now that the Brexit appears less likely.
Petar Zivkovski, director of operations for bitcoin trading platform Whaleclub, also spoke to the Brexit and its impact on bitcoin.
He emphasized that the possibility of the UK leaving the EU was “on the table” up until recently, but that, with this event looking increasingly unlikely, bitcoin's ability to serve as a safe asset would decline.
Zivkovski told CoinDesk:
The recent compromise of customer funds associated with the distributed autonomous organization The DAO may also be affecting bitcoin prices, according to Chris Burniske, analyst and blockchain products lead at investment management firm ARK Invest.
While The DAO is built on ethereum, an alternative blockchain platform, Burniske said that he has received correspondences from investors who confused issues with the DAO as representing a "weakness in bitcoin's underlying technology".
"People who are not well versed in Ethereum, bitcoin and blockchain technology can get easily confused and become gun-shy by bad news," he said, adding:
At press time, this situation was still evolving, with customers funds being moved in an apparent rescue attempt initiated by developers.
Bitfinex trading outage
Once bitcoin’s price began falling sharply, this helped fuel a “powerful long squeeze" that drove prices down further, said Zivkovski. As a result, he posited that "a snowball effect ensued".
Max Boonen, founder of market maker B2C2 Ltd, also weighed in on bitcoin’s sharp drop, stating that the outage affected traders who held short and long positions.
"The lower the price went after the outage, the larger the margin calls on Bitfinex when they would reopen,” he explained.
Still, after suffering these declines, bitcoin prices are in good shape to recover, Whaleclub data suggested. Whaleclub’s long-short ratio was 1.5:1 at the time of report, pointing to bullishness, and short interest had failed to become significant, Zivkovski said.
"Most traders are opting to ‘buy the dip’ and are reopening long positions at these lower prices, albeit less confidently," he said.
Such an opinion was also echoed by investor Vinny Lingham, who predicted this decline in prices would not persist.
Lingham told CoinDesk:
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