BitLicense & Bitfinex Flash Crash Impacted Bitcoin Market Most in August
The events that impacted the Bitcoin market the most in August were the Bitfinex Flash Crash and the kicking in of the New York BitLicense, according to itBit’s latest monthly market report.
August was very chaotic for global stock markets obviously playing a role in driving the bitcoin price down by approximately 18%.
Another of Bitcoin ecosystem events also drove the bitcoin price down.
Early in August the impending BitLicense deadline resulted in several prominent bitcoin exchanges to announce their “escape” from New York, resulting in a 6.7% price drop.
Nonetheless, the biggest drop in bitcoin price for the month, 17%, occurred during a “flash crash” on the Bitfinex exchange, one of the world’s largest by liquidity. The crash was triggered by a number of leveraged positions closing in close proximity. Bitfinex provides margin trading to customers, where they can borrow funds from the exchange’s lenders and make long or short bets on the bitcoin price rising or falling.
The other market moving events and news that moderately impacted the bitcoin price included the following:
- The arrest of former Mt. Gox CEO Mark Karpeles – a 1.5% decrease on August 1st.
- The launch of Symbiont’s first cryptosecurity – 1.5% increase on August 4th.
- New York State receiving 22 new BitLicense applications – 1.4% decrease on August 13th.
- Gavin Andresen’s Bitcoin XT / BIP101 fork to increase the blocksize – 1.4% decrease on August 17th.
- Industry support grows for Jeff Garzik’s BIP100 scalability fix – 2.3% increase on August 27th.
itBit’s market report identified three key global macro trends that could benefit bitcoin, namely the capital outflows from China, the stronger USD affect on merging markets, and the currency devaluations resulting from a US interest rate hike.
The freefall of the Shanghai stock market, the resulting Chinese government devaluation of the CNY and loss of market confidence in that currency is resulting in greater impetus for capital outflows from China.
The itBit report notes:
The devaluations and decreasing confidence in the renminbi may push speculators, who have lost
money in the Chinese stock market and believe it has room to fall further, to put money back into
bitcoin. China has also begun a major crackdown against capital flight and have taken measures to
stem outflows from the mainland. Bitcoin could be used by Chinese investors to get money out of
China and transfer wealth into other asset classes
The inverse relationship between the strengthening USD and the falling price of commodities is impacting many emerging markets that have commodity driven economies. As these economies issue a majority of their debt in USD, they may look for areas to diversify their investments.
The resulting economic uncertainty in emerging market nations could help bitcoin gain additional traction as a viable investment option. Citizens could use bitcoin to diversify and protect their portfolios.
A likely increase in the US interest rate by the end of the year would place additional pressure on emerging economies and larger ones like China to further devalue their currencies to remain competitive. Investors in these countries could look to bitcoin as “a decentralized store of value” and as “a means to move wealth out of the country into different asset classes.”
itBit calls for three areas to be monitored in September.
- US Interest Rate Hike: How will a potential rise in interest rates affect bitcoin and the USD?
- Bitcoin Fork: What impact will the ongoing fork debate have on trader sentiment and bitcoin price?
- Global Financial Markets: Will global stock markets continue to sink? How will this impact the bitcoin price?
In August, the Bitcoin BIP100 fork did not have a significant impact on the bitcoin market, despite all the airing of dirty laundry among the bitcoin core developers.