Traders have cited the big rally and profit taking as well as the ongoing “scaling debate” as reasons for the bitcoin pullback.
Bitcoin hit a near one-month low on Wednesday and has seen more than $12 billion wiped off its value in the last 30 days, amid nervousness in the cryprocurrency market.
The price of bitcoin fell to $2,272.32, its lowest level since June 15, when it slumped to $2,185.96, according to data from CoinDesk. The price did recover on Wednesday slightly to a high of $2,354.41.
It’s also significantly off the $3,025.47 all-time high reached on June 11, just over a month ago. In this timeframe, its market capitalization or value has fallen by $12.2 billion.
A major pullback is taking place at the moment in the cryptocurrency world after huge rallies. When bitcoin hit its record high in June, it had seen a more than 600 percent rally since the start of the year. Even with Wednesday’s fall, it is still up nearly 450 percent year-to-date.
That has raised concerns about the frothiness in the market at the moment, which could be part of the reason for the pullback. Richard Turnill, BlackRock’s global chief investment strategist, earlier this week warned about a potential bubble in cryptocurrencies.
“I look at the charts, and to me that looks pretty scary, ” Turnill said, according to a Reuters report.
Cryptocurrency traders are also uncertain with some unsure about the future trading pattern for bitcoin.
“I’m waiting for more downside before I rebuy, but frankly I’m even having trouble telling what it’s going to do, which probably reflects the uncertainty in the market itself, ” cryptocurrency trader Jason Hamilton, told CNBC via Twitter.
Roy Sebag, who is the CEO of GoldMoney, a platform to let people buy and trade the precious metal, is also a notable investor in cryptocurrencies. But the entrepreneur told CNBC via a Twitter exchange that he sold most of his bitcoin holdings because the market has reached the top.
The bitcoin community is also nervous about a planned change to the underlying code of the cryptocurrency’s protocol. Bitcoin transactions are taking longer than ever to process because the size of transactions on the blockchain, which is the technology that underpins the cyrptocurrency, is limited.
This so-called “scaling debate” has led to two separate proposals about how to increase the block size and speed up transactions. Transactions by users are gathered into “blocks” which is turned into a complex math solution. So-called miners, using high-powered computers work these solutions out to determine if the transaction is possible. Once other miners also check the puzzle is correct, the transactions are approved and the miners are rewarded in bitcoin.
But there is a big backlog in transactions and the speed at which these are processed is slowing. That’s because the rules of bitcoin only allow a certain amount of transactions through in one block.
One solution proposed by Bitcoin Core, a group of developers that guard bitcoin’s code, suggests a solution known as SegWit, which is explained here. This would lead to a so-called “soft fork” which would increase the block size. But it could mean less fees for miners, which are the people who verify and process transactions on the blockchain.
These miners are unhappy with SegWit and have suggested an alternative code change known as Bitcoin Unlimited. This would increase the block size significantly, but would also make their version of the bitcoin protocol incompatible with the original version.
As a result, a “hard fork” would take place, splitting the bitcoin blockchain in two, and even resulting in two separate coins. Investors would theoretically then hold some of the original bitcoin tokens, as well as the new Bitcoin Unlimited.
Each proposal requires large support from the participants in the bitcoin’s ecosystem, but there is strong disagreement.
BTCC is a massive bitcoin exchange in China which signaled support for the SegWit proposal. Its CEO Bobby Lee told CNBC that he is “confident” a solution will be found, but the uncertainty could be a reason why the bitcoin price has paused for breath.
“Not everyone is on the same page, there are people worried, some may be selling bitcoin, ” Lee told CNBC by phone on Wednesday.
