The Latest Bitcoin Tumble Ain’t Quite Like Before

By Greg Guenthner Feb 18, 2014, 12:28 PM 

Bitcoin prices have stabilized from their dramatic drop last week. But beyond the unsettling headlines, this was no ordinary e-currency crash. There are some big moves happening behind the scenes that could impact the future of the currency…

Our story begins at Tokyo-based Mt Gox – the oldest and largest venue for trading and storing Bitcoin. The exchange recently garnered significant negative attention from reports of delays in Bitcoin withdrawals, among other online currency issues. Then last week’s crash hit the Bitcoin market, alongside news that the Mt Gox exchange has suspended all Bitcoin withdrawals – pointing to underlying protocol issues as the reason for the decision.

“As a result, Mt Gox’s price correlation with other Bitcoin exchanges has absolutely fallen off a cliff,” explains Rude researcher Noah Sugarman. “Historically, Mt Gox Bitcoin prices have maintained a 0.99 correlation with prices at Bitstamp – another high volume Bitcoin exchange. But since the suspension announcement last week, that correlation has fallen below 0.50, with similar cases witnessed across many other exchanges.”

Meanwhile on other exchanges, the e-currency has somehow remained stable. The main reason that this price discrepancy has become so large is because Mt Gox continues to suspend all withdrawals.

Moreover, a dark cloud hangs over the future of all Bitcoin holdings on the Mt Gox exchange.

Sure, volatility is nothing new to Bitcoin. But what we’re witnessing right now is a massive price disassociation across various Bitcoin exchanges. And the “most trusted” Bitcoin site — Mt Gox — stands at the heart of it.

It’s possible that the company fades back into irrelevancy soon…

“As it stands, Bitcoin prices could stabilize and even increase as the turmoil from the exchange discrepancy fades,” Noah continues. “But I’m predicting a mass exodus from the Mt Gox exchange. However, Bitcoin itself is already emerging from the weeds.”

Still, it’s not time to buy the Bitcoin dip. In fact, that might be the most dangerous trade you could make at the moment…

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