As of 2:24 PM UTC on Friday, Bitcoin Price had dropped by nearly $6500 on the week. It is now trading at around $32,400 per coin. There are several reasons why Bitcoin has experienced the worst week since March 2020. Here are some of them.
Bitcoin Double Spend Rumor – Fake News
One of the issues suspected to be causing a sharp sell-off in Bitcoin is a double spend event. However, it turned out to be a misunderstanding. Nevertheless, the event was widely reported by crypto news outlets. Andreas Antonopoulos, a prominent Bitcoin educator, further explained why a double-spend did not occur. For those unfamiliar, a double-spend means that the same Bitcoin batch was spent twice. This involves manipulating transaction records on the blockchain. If this actually occurred, many investors would lose faith in Bitcoin’s proposed “store of value” infrastructure.
Following a “false report,” Andreas stated that the double-spend allegations were not correct. Instead, two transactions had been conducted at almost the same time. According to Andreas M. Antonopoulos’s Twitter thread, the event is known as temporary block reorganization, with about one or two occurring every week. What is a rarer event, as it occurred most recently, was a pair of transactions being added to the blockchain from one address.
What happens to any transactions in the discarded block? If they are also in the winning block then all is well. If they are not in the winning block, each node puts them back into its mempool as "unconfirmed" and they wait for another opportunity
8/
— Andreas (@aantonop) January 21, 2021
JP Morgan Report
According to a recent report by Bloomberg, analysts at JP Morgan warned investors that Bitcoin was one of the least reliable dollar hedge strategies, especially during times of acute market stress. The analysts believe this due to the large number of retail investors affiliated with Bitcoin. As a result, there is a high correlation between the crypto coin and cyclical assets. The JP Morgan team did acknowledge the increasing investor appetite for Bitcoin. However, they cautioned that it was nowhere close to behaving like traditional defensive assets during times of economic turmoil.
Warning By Guggenheim Partners CIO Regarding Bitcoin Price
The Chief Investment Officer at Guggenheim Partners, Scott Minerd, recently warned about Bitcoin investments in a CNBC interview. According to the CIO, Bitcoin price could drop back to $20,000 soon. Minerd’s words carry a lot of weight in the investment world, considering that Guggenheim Partners manages $270 billion worth of assets.
Bitcoin Price Concern Over Janet Yellen’s Opinion On Crypto
During her recent Senate confirmation hearing, Janet Yellen said that crypto was mainly used for illicit transactions. She said that crypto was a “particular concern.” According to her, she would examine ways to restrict their use to ensure that illegal activities through crypto are stopped. She made the comments in response to a question by Senator Maggie Hassan (D- New Hampshire) about the use of crypto by terrorists and other criminals.
In the US, like many other places around the world, authorities have focused their activities on trying to get crypto exchanges to comply with the law. The reason for this is that controlling blockchains themselves is nearly impossible. Once an illegal transaction is detected, they often try to trace it to a real person by checking activity on regulated crypto exchanges. That is the route Yellen, who is set to become the Secretary of the Treasury Department, will likely take. FinCEN already proposed tough reporting rules for crypto exchanges.
However, players in the crypto sector, such as Square and a16z have heavily criticized those rules. They feel that such heavy-handed regulation will only drive users of crypto underground, which will make it harder for authorities to track transactions. Some believe that Yellen could take even stricter measures such as going after exchange off-ramps. If this came to fruition, it would raise serious concerns across the industry.
Despite Bitcoin’s rapid sell-off this week, the largest digital asset by market cap is still trading at $32,400. Based on parabolic moves over the last six months, this drawdown is normalized price action. People still forget that BTC has surged ~ 46% over the last month and ~ 160% over the last 3 months.
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