Bitcoin is having a bad week. Picture: iStock
Bitcoin is having a bad week. Picture: iStock

‘Civil war’ behind bitcoin crash

Bitcoin has dipped below $US5000 for the first time in 13 months.

The cryptocurrency has plunged nearly 14 per cent over the past 24 hours to trade at $US4843 early on Tuesday, nearly 25 per cent down from a week ago.

It came amid a broader sell-off of that wiped nearly $US24 billion off the market capitalisation of more than 2000 tokens tracked by Coinmarketcap.

Bitcoin hasn't traded at $US5000 since October 12 last year when it briefly passed through the milestone during its meteoric run-up to an all-time high of $US20,000.

The digital currency has hovered around the $US6000 mark for most of 2018 after the entire cryptocurrency market crashed at the start of the year, but many enthusiasts believed it would not drop below $US5000 again.

Ripple, the second largest cryptocurrency, was down nearly 6 per cent at the time of writing, while ethereum had lost nearly 16 per cent.

The latest sell-off was largely driven by fears last Thursday's so-called "hard fork" in bitcoin cash - controversially splitting the bitcoin offshoot into two separate currencies - would destabilise the market.

The rival forks are backed by two of the biggest names in crypto, Roger "Bitcoin Jesus" Ver and Australian computer scientist Craig Wright, who claims to be bitcoin's mysterious inventor "Satoshi Nakamoto".

"There are two different camps," said Egor Sidelska, director of Australian-based crypto hedge fund Magnet Capital.

"They were originally together focused on bitcoin cash and the argument basically started where one said, 'I would like to take the code in direction X' and the other said, 'I disagree, I'd like to take the code in direction Y'.

"It just so happens that these two individuals are relatively famous in the crypto landscape, they also hold a large proportion of crypto themselves and they have an influence into mining pools.

"Mining pools are important because they control hashpower. The more hashpower you have the more influence you have on the network. When the two chains split, the chain with the most hashpower is considered the 'winner'.

"What's happened is one has threatened the other with network attacks. There are multiple but the one he's threatened is using his hashpower to mine empty blocks on the opponent chain. When you do you clog up the network."

Mr Sidelska said even though the hash war had been "blown way out of proportion" and only affected people that own coins on the bitcoin cash chain, it was leading to "speculation and fear".

"If you have a situation where you have an individual that can very openly start manipulating and attacking an entire network, it's just a powerful negative influence," he said.

"At the moment the market is not driven by positive news, it's disproportionately influenced by negative news because of the bear market we're in."

Earlier this week, Bloomberg analysts predicted bitcoin's price could fall as low as $US1500, but Mr Sidelska believes there "will be some sort of bounce" off its current level.

According to Fred Schebesta, co-founder of Finder and crypto broker service HiveEx.com, buyers have "lost the fear of missing out".

"It's easy to buy bitcoin now and realistically today, there is very little difference with the technology between all the coins," he said in an email.

"There hasn't been enough time for the technology to prove itself. So people are selling because they've lost hope in the narrative and the dream of cryptocurrency. People have also lost over 90 per cent on the 'tulip mania' utility coins.

"As much as bitcoin is trying to be a store of value, it's very hard to believe in it when it drops 25 per cent in a week.

"Apart from bitcoin, we're not going to see the same top 20 coins in 12 months time. We need to find a new use case apart from bitcoin. This is coming. Because during 2012 when everyone said internet advertising is dead, Google was building AdWords."


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