The price of bitcoin has plunged almost 25 percent since hitting a two-and-a-half year high last week amid problems at a key exchange and diminishing fears of a Brexit.
Bitcoin was trading around $590.53 by midday London time, a fall of around 23.8 percent from the $774.94 close on June 17, which marked the highest close since November 22, 2013.
The initial rise in the price of the cryptocurrency came last week as traders prepared for a process known as “halving” – where the rewards offered to bitcoin miners fall, thus tightening the supply of the digital currency. With anticipation of less supply, prices spiked.
Key exchange shuts down
But sentiment was dampened when earlier this week, Hong Kong-based bitcoin exchange Bitfinex was closed for a few hours because of “networking issues” in the company’s data center, it said on Twitter. The issues were fixed on the same day.
Bitcoin insiders said that because of the high leverage people trade the digital currency with, small issues in the market can cause big moves.
“The bitcoin price when it goes up is always fuelled by a high leverage, people using margin borrowing money to buy up the price anticipating the block rewarded halving, so the smallest hairline crack can cause a selloff,” Bobby Lee, chief executive of BTCC, one of the largest bitcoin exchanges in the world based in China.
“Bitfinex’s website went down and that was a catalyst for people pulling back, cutting positions, locking in gains. There is waterfall effect where then people are selling, selling, selling.”
At the same time, bitcoin has received some safe-haven bids in recent weeks thanks to uncertainty about which way Britons would vote in the country’s referendum on its membership of the European Union (EU), which began on Thursday morning.
But opinion polls leading up to the referendum showed a slight bias towards the remain camp winning, helping push financial markets and the sterling higher, but causing a fall in the price of bitcoin.
“I do think it’s primarily macro things such as Brexit, you saw the price run up as you saw the opinion polls show leave was winning and as those polls reversed over the weekend, that’s when we saw the price reverse” Tom Robinson, co-founder of blockchain start-up Elliptic, told CNBC by phone.
Conversely, the threat of a Brexit had an adverse effect on the Chinese yuan, which hit a five-year low last week, was also a reason cited by experts, given China accounts for the large amount of bitcoin trading.
“Brexit could be a major factor, but, since the lion’s share of bitcoin trading activity occurs in and around China, it’s unlikely that this is the primary cause. Although if you look at the bitcoin price among exchanges based in China they are $10-20 lower than the global exchanges, this might reflect the yuan’s 5-year low and the expected yuan volatility as a result of Brexit,” Aurélien Menant, CEO and co-founder, Gatecoin, a digital currency exchange, wrote .