After rising to nearly $20,000 late last year, the price of Bitcoin has recently plummeted.
According to coinmarketcap.com, the largest cryptocurrency, Bitcoin traded as high as $19,900 on December 17th, 2017. Less than six weeks after hitting a high of almost $20,000, Bitcoin was trading near $9000. That’s a loss of more than 50% in 44 days!
What might have been behind Bitcoin’s meteoric rise and stunning slump?
It didn’t help when another half a billion dollars in Bitcoin were stolen by hackers from a Japanese exchange, last month. Add that to the almost $500 million theft from the bankrupt exchange, Mt. Gox, back in 2014 and you can understand why some might be concerned about safety.
However, a bigger part of the answer may lie in that bane of speculative markets, good, old-fashioned illegal market manipulation.
While far from being proven, there are indications that one cryptocurrency, Tether (whose selling point is a claim of U.S. dollar reserves backing every Tether coin) may have been buying up Bitcoin with its own made up currency. In essence, using fake money to speculate in fake money.
Articles in the New York Times, Bloomberg, and others, Tether may not be what they claim. They are serious questions being raised about their claim to have one U.S. dollar supporting each dollar of Tether. Add to that, the growing concerns that Tether may have been manipulating the price of Bitcoin. The allegations are serious enough that U.S. commodities regulators have sent a subpoena to Tether and the Bitcoin exchange, Bitfinex (who share the same CEO with Tether)
If true, what Tether was doing is even worse than the 1920s speculation in stock using 100% margin (borrowed money). It works for a while, as long as there are other gullible speculators lined up to buy, but when people realize that they’ve been had, the buyers dry up and, well, look at what happened in 1929.
There is a silver lining: While a large percentage of the U.S. economy was lost in the wake of the Crash of ’29, the only a very few gamblers are likely to suffer in a cryptocurrency collapse. It’s hard to have a run on a cyber bank when there isn’t even a bank.