Bitcoin Breaks Below $400, Chinese Probably Selling

On September 19 bitcoin’s price took a nosedive, simultaneously hitting two separate but notably dubious milestones: one, the price broke below the $400 threshold; and two, the days losses meant the cryptocurrency had officially lost half its value in 2014. Both are psychological blows to its investors, who even if they’re going long for ideological reasons have to concede that the global popularity of the cryptocurrency is currently going through a waning period. Otherwise, people wouldn’t be liquidating.

Of course, there are bright spots to point out for bitcoin aficiandaos: more and more stateside businesses are accepting the currency for goods and services. Several big players in the tech sector have thrown their financial support behind it, notably Richard Branson of the Virgin empire and Tim Draper of the infamous, failed “Six Californias” proposition. In those regards, bitcoin has certainly made strides in becoming more mainstream and thus stronger as a currency.

So then, why is the price dropping this time? If businesses are accepting the currency in greater numbers (and not just businesses with a negligible client base), and the Tim Drapers and the Richard Bransons are throwing both their money, and ideological support is still behind bitcoin, what’s happening? The problem is these developments only really affect bitcoin trade within the US, when bitcoin is anything but a US phenomenon.

While the US bitcoin community has made strides in creating a self-perpetuating economy within the US, the same can’t necessarily be said abroad. Bitcoin does not exist in a vacuum, and despite their best efforts stateside, American bitcoiners can’t dictate the investment decisions of the global community.

This was made clear on September 18 trading action that saw volume at China’s biggest bitcoin exchange, BTC-China, clock in at more than 50 percent above normal. And judging by the negative price action, it was a lot of Chinese bitcoin holders selling. 

The ties between Chinese investors and bitcoin are inextricable. Though it is a debatable point due to allegations of inflated numbers at Chinese exchanges, the buying and selling decisions of the Eastern bitcoin investors almost always has a noticeable affect on the price of bitcoin.

Whether the Chinese move en masse into the currency on the heels of the Chinese real estate bubble scare and cause the price to go up (as in December 2013,) or fears of tighter internal regulations on bitcoin cause panic selling (as in February 2014) and cause the global price to go down.

US Bitcoiners interested in keeping the price point of bitcoin at or above where it is need to keep in mind that the actions of Chinese investors have a much, much larger impact on its price. Than is usually accounted for There does not appear to be a concrete reason for this current sell-off, at least one beyond the fact that bitcoin has been declining in value and Chinese investors might have just had enough. But make no mistake: this current price drop cannot be staved off by getting one more stateside tech company to accept BTC.