Bitcoin’s latest huge crash contains a pattern that could reveal a horrible secret about manipulation of the cryptocurrency.
In the last week Bitcoin has lost 30 per cent of its value, again. Bitcoin FOMO is over. The digital currency, which earlier this month notched up a year of underperformance, has entered an ugly new phase.
If you bought Bitcoin a year ago (at around US$8,000), and held on ever since, you have lost around 46 per cent of your money. This next graph, from Coinbase, shows Bitcoin’s performance over the past year — terribly exciting at first, then just terrible.
Bitcoin’s price was crazy volatile a year ago. It surged to a huge peak just before Christmas 2017 and then spiralled uncontrollably down to hit a low by February.
But in recent months, Bitcoin has looked quiet. Too quiet …
A period of very suspicious stability fell upon cryptocurrency markets in September. In September, October and November, as global markets roared and wept, Bitcoin showed about as much volatility as a rock. Almost every day it was trading between US$6200 and US$6600. The flatness was remarkable.
The stability made Bitcoin boring. Until all of a sudden it wasn’t. When that happened, the crash had a very peculiar shape about it that made me sit up and pay attention.
I felt like I’d seen this before. It looked to me a lot like the collapse of a fixed currency, also known as a peg. This next graph shows the exchange rate between Argentina and America, where the peg collapsed in 2002.