Bitcoin Exchange Rate Drops 55% in 48 Hours
On Thursday, June 9th, Bitcoin was trading consistently between $28.00 and$29.00, however, by the end of the day on Friday that value had dropped to a range of $23.00 to $24.00. The decline continued into Saturday, hitting a low of $13.00 on Saturday morning, before rebounding to $17.00 during the middle of the day. Between Bitcoin’s Friday average high of about $28.00 and Saturday’s low of $13.00, the value of Bitcoin dropped by more than 55% in a period of 24 hours.
Bitcoin had been trading between $1.00 and $2.00 up until the end of April, when the project was featured on a number of high-profile podcasts and websites. Because of the massive exposure that Bitcoin received, demand for it skyrocketed. During the last week, the currency was trading as high as $31.00 as a result increased demand and relatively fixed supply of Bitcoin available. It was only a matter of time before Bitcoin’s massive gains against the dollar evaporated.
Friday also saw very unusual trading volume for Bitcoin. There was approximately $2 million worth of Bitcoins bought and sold on Mt. Gox’s Bitcoin currency exchange on Friday. This figure is significant since a total of $19 million worth of Bitcoin trading volume had occurred during the last six months. Trading volume had returned to more normal levels by Saturday morning.
It’s not entirely clear what triggered the sell-off, but it is clear that Bitcoin went through an electronic version of a “bank rush” on Friday. Most real-world markets would automatically close to prevent massive inflation in a situation similar to what happened with Bitcoin on Friday, but Bitcoin’s network has no mechanisms to deal with massive shifts in exchange rates.
The major drop in the value of Bitcoin on Friday demonstrated its immaturity as a currency. Massive gains and losses in the currency’s exchange rate shows that its value largely depends on the interest in the currency on any given day. Bitcoin’s value will need to stabilize before anyone will look at it as a currency with any sort of sustainability.