Why has bitcoin dropped so precipitously in the last two weeks?

This question comes as the incumbent virtual currency has declined 46% since Nov. 13 and now struggles to sustain a range between $3,900 and $4,000. There is no single answer to this question, but anyone paying attention to the market this year will know a handful of them.

Mirror on the Ceiling

One answer is simply that bitcoin was once worth $20,000. The gravity of this number has as much pull to the downside as it does optimism for the upside, however. What was once the fear of missing out quickly turned into the fear of holding the world's riskiest asset at the top of the roller coaster. bitcoin is known for its cyclical nature, and the ride into five-figure territory wasn't its first, just its biggest. Everyone knows that greed and fear play tug of war with bitcoin and create volatile price bubbles, and in September 2017 no one knew where the ceiling was. We all remember conservative estimates from experts calling for $100,000 per bitcoin in 2019. But now, no one knows where the bottom is.

Technical Analysis Becomes Prophecy

For technical analysis fans, the idea that bitcoin must "reset" according to past bubbles means it must lose at least 90% of its all-time-high value, which would put it at $2,000 per coin. This theory holds more water now that bitcoin broke $6,000 to the downside, which had been holding stubbornly ever since June. After testing this level upwards of 10 times in the last three months, the plunge brought bitcoin crashing through its 100-day moving average and on its way to the 200 (it currently sits at $3,180).

Yuval Gov, CEO at cryptocurrency market research firm CryptoPotato agreed, saying, "Bitcoin's price had months of sideways movement and was at a very fragile point. There was only a trigger missing to create the explosion, and the trigger came from the bitcoin cash hash wars alongside FUD from the SEC which only added fuel to the fire."

Veterans remember that the last crash was also "triggered" by the implosion of Mt. Gox. The presence of shorting, leverage, and derivatives, which didn't exist during the last bubble, was also relevant. Bitcoin influencers like Erik Voorhees have declared this the "euphoria" stage for bears, which not only implies that the worst is almost over but also that there's as much profit in the trenches as in the peaks.

Evaluating a Unique Asset

On the fundamental side, fans of the technology and implications of blockchain are forced to try to appraise bitcoin's value at present. Is it worth $6,000, or even $2,000? Inconclusive. It hasn't achieved many milestones in speed or cost, nor managed to gain any acceptance as a universal payment method for commerce or even personal finance, and it has increasingly relied on a bloated system of third-party software and fragile governance to run.

Speaking on the idea of governance, president of Blockchain at Columbia University, Nir Kabessa, said that "from our perspective, the ABC/SV fork of bitcoin cash has been detrimental to the stability of bitcoin. The first few forks like bitcoin vs. bitcoin cash created economic value by providing differentiation in terms of security, throughput, and more. Now, they're reductive to economic value by continually splitting their pre-fork developer and investor communities, and many well-funded projects of 2017 have yet to deliver on their products."

Some see this latest crash as the death throes of the cryptocurrency market. Realistic, sobering facts support this: Mining is no longer profitable, and miners have begun dumping their hardware at a loss. Institutional inroads into cryptocurrency have compromised its once-rebellious nature and it may be worth more to them dead than alive. Suspicious mechanisms prop up the industry, such as tether, unregulated exchanges, and risky financial instruments such as MakerDAO Collateralized Debt Positions and BitMex's 100x leverage instruments.

Alon Rajic, CEO of cryptocurrency exchange rate tracker moneytransfercomparison.com, added that "bitcoin and cryptocurrencies have enjoyed tailwinds from the economic conditions that low interest rates have created these last few years. However, the cryptocurrency market has seen a serious reversal of fortunes that is likely to continue until the industry shows signs of shedding its volatility - or when the opportunity in other traditional assets become less appealing."

Traders have realized that the traditional financial market is itself struggling currently, which doesn't bode well for riskier, illiquid assets like bitcoin.

The author holds stock in investment holding company, Leucadia, and is a partner in an emerging technology marketing firm, Notability Partners. He holds no positions in cryptocurrencies nor in any companies that invest in them.