Washington Post

Bitcoin prices drop nearly 50 pct. in months

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The prize of the Bitcoin is plunging.

In the past three months, the price of the cryptocurrency bitcoin has fallen nearly 50 percent — going from about $630 per bitcoin to $320 per bitcoin, according to CoinDesk's bitcoin price index, which averages the prices on major exchanges.

That's obviously an extreme shift, though bitcoin trading prices are notoriously volatile, sometimes making similar percentage drops in a matter of hours or days.

The difference here is that it appears to be a slow, measured pattern of decline.

There has been major regulatory news in the past few months, including New York's proposed rules for virtual currencies and Russia's proposal to punish their use. But that doesn't seem to have produced the same type of seismic shifts as when China ordered local payment processors to stop transactions involving digital currencies such as bitcoin.

Instead, Jerry Brito, the executive director of industry-backed think tank Coin Center, said he believes the downward trend in bitcoin may actually be related to its rising popularity among merchants in recent months.

In September, Overstock.com became the first major online retailer to accept the cryptocurrency globally.

"It's hard to tell what exactly causes these price movements, but what I think makes most sense is that as bitcoin merchant adoption grows, there is increasing sell pressure in the market," Brito says. "Because there are not yet very good hedging instruments for bitcoin, merchants that accept bitcoin for payment will immediately sell, so as to not be exposed to any volatility."

Basically, merchants don't want to hold on to the bitcoins they accept as payment. Thus, Brito says, there's a constant sell pressure, which he said he believes may have snowballed into the downward trend.

Brito is optimistic, however, about the future of the market, saying that "needed hedging instruments are coming along very shortly" and that long-term investors may actually buy in the current low.

The $320 exchange rate that the cryptocurrency is floating around is a substantial drop from the highs of last year, when bitcoins reached more than $1,100 on some markets near the end of the year after dramatic surges.

Looking even further back shows just how turbulent 2013 and 2014 were for the overall currency and payment system, which faced major booms and busts at much more significant dollar levels than it had earlier.

Bitcoin received intense media coverage as it experienced some growing pains, including regulatory turmoil, a bankruptcy scandal involving one of the most popular exchanges and various attempts to unmask the cryptocurrency's mysterious creator.

But given all the hype the currency has received, it can be easy to forget that the system was launched only in 2009 and that the price stayed well below the current levels until the latter half of 2013.

(c) 2014, The Washington Post

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