Bitcoin (BTC/USD) plunged by 13.6% to $221, its lowest price since June 5 and within striking distance of 4-month lows.
The drop was the steepest for bitcoin since February. The bulk of the losses took place during a mini “flash crash” lasting less than an hour. At least partially to blame was a larger flash crash on Bitfinex, where prices plummeted to $162, a loss of 35%, during the period. The crash was catalyzed by a massive sell volume of over 44,000 BTC (worth approximately $9 million, based on the average price).
Prices then violently reversed course, recouping all their losses, also on a volume near 44,000 BTC. They have since settled near $234, still well below the fresh 6-week lows set this past weekend. Prior to the flash crash, prices had broken through these lows.
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Despite the apparently purely technical nature of the drop, bitcoin is still 7.8% lower than where it was 24 hours ago. There are thus likely fundamental factors at play, the most intuitive being reduced investor confidence arising from the debate surrounding Bitcoin XT, a potential hard fork that has split the community.
Price stability had been decreasing during recent weeks as bitcoin crossed back below its 50-day moving average (MA). Today’s drop all but erases the spring gains, and challenges the notion of a new era of stability with greater involvement of institutional trading venues.
Last year’s August also saw a return of extreme volatility to the crypto markets following several months of stability. Altcoins like litecoin were bruised badly during the period. This time around, however, litecoin got off fairly easy, dropping roughly in step with bitcoin. The LTC/BTC rate continues to hold steady near 0.015.