In a period of seven days, Bitcoin price surged from $1,900 to $2,700. In some regions such as South Korea, Bitcoin was being traded at around $4,000. Analysts predicted that a bubble was imminent and that a correction would have to occur.
On May 26th Bitcoin price declined by $500 from $2,500 to $2,000, recording its first major drop since the beginning of May. The next day, it continued to fall and at the time of writing stands at around $1,900.
Over the past month, Bitcoin investors and traders have enjoyed the meteoric rise in Bitcoin price. Based on global average price provided by several cryptocurrency market data providers, Bitcoin price increased twice: from the $1,300 region to $2,700 at its peak. On a monthly basis, Bitcoin has recorded a 35 percent gain.
Based on various measures, including demand from investors, trading volume, an irregular increase in price and search trends, analysts including angel Bitcoin investor Trace Mayer predicted Bitcoin’s fourth bubble earlier this week.
James Wang, an analyst at ARK Invest and former researcher at Nvidia, also raised a similar point to Mayer, expressing his concern over a bubble building up in the global cryptocurrency market.
Wang explained that Bitcoin’s recent price surge to the $2,500 region also led to 10x gains for alternative cryptocurrencies (altcoins), which encouraged casual traders and investors to enter the cryptocurrency market.
“Seeing that Bitcoin has crossed $2,500 and other tokens have gone up 10x, every aunt, uncle, and teenager rushes in, pushing total crypto market valuation over $100 bln. As optimism reaches fever pitch, the smart money exits.”
However, Wang’s description of early sellers of Bitcoin as “smart money” is inaccurate. As Koji Higashi, a Japan-based analyst and IndieSquare co-founder previously explained, “not-so-smart” money has fueled both Bitcoin and altcoins in Japan, South Korea and other regions.
Investors who have entered the cryptocurrency market for short-term gains shouldn’t necessarily be described as “smart money” and smart investors.
“Newly entering Japanese investors are driving this great altcoin bubble and not-so-smart money is flowing into space especially into some altcoins at a rather concerning rate,” said Higashi.
Let’s recap the recent timeline:
At the beginning of April, Japan announced bitcoin had become a legal payment method in the country.
Additionally, Ulmart, Russia‘s largest online retailer, said it would begin accepting bitcoin even though Russia had said it wouldn’t explore the cryptocurrency until 2018.
The gains also seem to be boosted by speculation the US Securities and Exchange Commission could overturn its ruling on the Winklevoss twins’ bitcoin exchange-traded fund.
Fidelity’s CEO Abigail Johnson recently lent some credibility to the cryptocurrency space, explaining how her firm was mining Bitcoin, and accepting payments in the virtual currency.
This crash probably has a little way to go, with a likely bottom around $1,500, but the important thing to watch for after the bottom is found is not how low, but how fast the bitcoin price increases.