Pantera Capital has weighed in on the recent tumble in bitcoin prices.
The hedge fund believes that the introduction of margin trading to bitcoin has likely increased the magnitude of price moves. The options market for bitcoin is limited so investors have a tougher time hedging their positions, leading them to liquidate positions under difficult market conditions.
Their analysis pointed out that short sellers have tried to take advantage of the declines, further contributing to the vicious cycle. Cumulative short interest, they say, is at an all-time high.
Other analyses have previously brought up the role of miners looking to turn their newly minted coins into dollars and cover expenses. Pantera highlighted that in earlier years, miners were more interested in accumulating bitcoins. Today, however, covering costs is a bigger issue.
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The Bitstamp hack is also believed to have reduced investor confidence in the system. Furthermore, prices may have been adversely affected by Bitstamp having to cancel open orders prior to reopening.
A rather novel idea is the role of venture investment in the Bitcoin industry. The benefits, in theory, should extend to the traded price. However:
“As these funds move into venture investing, they are diverted from investing directly into bitcoin. Investing directly into bitcoin was a fast and efficient way to get exposure to this exciting technology. As venture opportunities have increased, funds that previously flowed into bitcoin purchases are now going to venture investments, and in some cases bitcoin liquidations may be funding venture deals.”
Pantera also emphasized that its BitIndex, which gauges the strength of the Bitcoin ecosystem and omits the traded price, is up by 109% since November 2013.
The hedge fund has previously expressed bullish sentiment on the bitcoin price, last year predicting it can reach $10,000.