Bitcoin Drops to Three-week Low on Profit Taking
Bitcoin fell to a three-week low as investors took profits partly in response to a bearish report from Goldman Sachs.
Image for representational purposes. (Reuters)
Bitcoin fell to a three-week low as investors took profits partly in response to a bearish report from Goldman Sachs as well as concerns about a Chinese bitcoin miner's plan to undertake a "hard fork" that will result in a split in the digital currency.
The virtual currency relies on "mining" computers that validate blocks of transactions by competing to solve mathematical puzzles every 10 minutes. The first to solve the puzzle and clear the transaction is rewarded with new bitcoins.
Bitcoin fell as low as $2,120 on the Bitstamp on Thursday and was last down 6 percent at $2,290. On the week, the currency has fallen about 22 percent, on track for its largest weekly slide since December 2013.
On Monday, bitcoin hit a record just shy of $3,000. So far this year, bitcoin remains up 137 percent.
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Sharp losses such as Thursday's are par for the course for an asset like bitcoin, analysts said. Over the course of its eight-year history, Bitcoin has on a daily basis risen as much as 18 percent and fallen as much as 13 percent.
Greg Dwyer, business development manager at crypto-currency trading platform BitMEX, said bitcoin's decline may have started on Monday when Goldman Sachs analyst Sheba Jafari said in a report, "The balance of signals are looking broadly heavy" for bitcoin.
Jafari was "wary of a near-term top ahead of $3,134, adding that investors should consider re-establishing bullish exposure between $2,330 and no lower than $1,915."
Analysts also said investors were spooked by Chinese miner Bitmain's plan to undertake a "hard fork" of bitcoin if a code upgrade on the currency is activated late this summer.
Under a "hard fork", Bitmain would create an entirely new version of the bitcoin blockchain, resulting in an entirely new bitcoin currency, separate from the original currency.
Bitmain's move was in response to proposals that attempt to solve the bitcoin network's limitations in processing millions of daily transactions. Bitcoin's network has not kept pace with its growth and is unable to process all the transactions fast enough.
"Traders are concerned with what a fork could do to their holdings and most likely now converting to fiat (government currencies) until some clarity about the scaling debate comes to light," said BitMEX's Dwyer.
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