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Here's Why Bitcoin Crashed More Than 20% Today

Ryan McQueeney

Bitcoin (BTC), a popular digital cryptocurrency, is on track to have one of its worst days in years after prices suddenly fell more than 20% in morning trading Thursday. While some investors think today’s action is just an adjustment after a months-long rally, others are blaming the expiration of loans from several Chinese BTC platforms for the sell-off.

Today’s "Crash"

Bitcoin opened the day at $1.129.87 and shortly hit an intraday high of $1,153.02 in morning trading. However, the cryptocurrency quickly dropped as low as $887.47, a plunge of more than 21%. BTC was able to rally again in the early afternoon, and prices returned above the $980 level by 1 P.M. EST.  

According to some Bitcoin traders on a popular Reddit forum, today’s crash could be the result of a free loan period offered by several Chinese BTC platforms coming to an end. One user pointed out that many Chinese BTC holders would have to sell their bitcoins to pay back loans that end on January 7 Beijing time.

Of course, today’s sell-off could also be a value-based adjustment as BTC approached all-time highs. The currency has been on an insane run over the past several months, gaining more than 80% since October 2016. Indeed, Bitcoin traders are no strangers to volatility, and the nature of the currency lends itself to swings that we wouldn’t expect from traditional currencies.

What is Bitcoin?

As mentioned before, Bitcoin is a cryptocurrency, meaning that it is an encrypted digital currency that only exists virtually and operates independently of a central bank. Launched in January 2009, Bitcoin has grown quickly and has become a widely-accepted form of payment online (Also read: Explaining Bitcoin and Crypto Currency).

Bitcoin is considered an anonymous currency because it is possible to send and receive payments without revealing any personal information. Transactions are tied to a bitcoin address, a series of numbers and letters. All transactions are stored in the so-called blockchain, which records and verifies transactions.

This blockchain is operated by a network of “miners” that monitor and validate transactions. In return, miners receive newly issued bitcoins.

Bottom Line

Trading bitcoins can be a test of one’s patience and determination. One of the most fascinating things about the currency is its legion of loyal long-term holders, and these folks are likely to overlook one-day crashes. Nevertheless, today’s sell-off underscores the volatility that keeps a lot of investors away from BTC.

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