Three Ways Bitcoin Can Crash In The Near Future

12/19/2017 - 10:27 UTC
Three Ways Bitcoin Can Crash In The Near Future

Bitcoin investors are enjoying a tremendous price growth in 2017, more than 1800%, which gave most of them a great deal of revenue. Although many would love the price to go even higher in the next year, there are some scenarios where BTC can crash. explains three of these grim developments.

Big Games By Big Whales

As we have reported earlier, a few hundred early investors and users control most bitcoins in circulation today. Moreover, we are in a process where the so-called institutional investors (mutual funds, investment banks or just billionaires) increasingly engage in cryptocurrency investments. We can assume that some of these actors are buying big chunks of bitcoins and, naturally,  are after huge gains. But here's the catch: we don't know for sure. When they invest hugely in the stock market, they are obliged by law to file a form with the SEC. But, as crypto markets are not regulated, they don't have to do that when buying or selling cryptocurrencies. Therefore, whales can play their own game in bitcoin without warning anybody. And they know better than anybody else when the price falls like a rock so that they can buy at a much lower price and make money on the upswing.

The same is true for early investors such as the Winklevoss twins or Satoshi Nakamoto himself. If any of these actors decide to game the bitcoin market, that would have a tremendous impact on volatility and bitcoin price could experience a dramatic dip suddenly.

The Ripple Effect

This second scenario is mostly a grim expansion of the first one. Suppose a whale (Wall Street bank, hedge fund, etc.) has amassed a massive position in bitcoin. If they decide to dump everything at once, that would surely trigger a huge BTC price decline.  But that move could also signal to other whales that it's high time to unload their cryptocurrency holdings as well to avoid massive losses. They could sell everything adding more blood to the market. In turn, smaller investors could panic from the bears and sell too.  

If that continues for some time, then Bitcoin could rapidly lose its main investment attraction: profit speculation. That would trigger a new wave of sell-offs in the markets, and so on.  Of course, this is a pretty much a doomsday scenario, but it is still a scenario that could happen at any given time.

The Big Short

The third grim scenario about Bitcoin price is the most obvious one and the one with most actual probability. It is based on the fact that futures contract trading is now available (at the moment by CBOE and CME Group, others coming too) thus smart money can easily play the downside of Bitcoin.

Although many small Bitcoin investors have "long" positions, meaning they are holding their BTC because they hope it will continue to rise rapidly, this is not necessarily the case with big players. Many of them have quite a reputation for making money by "shorting" stocks and assets,  gambling on price drops.

So, in this scenario, many major-league players decide to short the currency at the same time. Given the fact that they command insurmountable sums of fiat money, they could also game the crypto markets using any combination of the first two scenarios so that their short position in futures comes true. They can get their big money by triggering a massive decline in Bitcoin price.  Remember: cryptocurrencies are not regulated. Thus they are not obliged to tell anybody, and there are indeed no rules against such a move.

In any of these scenarios, one could argue that small-time investors are not fools to not have proper stop limits in their cryptocurrency positions. But here's the thing: any of the above three scenarios has happened countless times before and guess who lost most their money.


Disclaimer: This article should not be taken as, and is not intended to provide, investment advice on Bitcoin, Cryptocurrencies or finance in general.