Anna Sheffer
December 22, 2017 10:47 am
Chesnot/Getty Images

We’ve all heard of the most famous cryptocurrency, Bitcoin. But the digital money is still shrouded in mystery. In the most recent cryptocurrency conundrum, Bitcoin pricing is crashing, but what does that mean, and why is it happening?

How bad was this Bitcoin pricing crash?

The value of Bitcoin skyrocketed to an all-time high of $19,500 on December 18th. But by today, December 22nd, the currency’s value had tanked to below $13,000 — that’s a 33 percent decrease in price.

And Bitcoin wasn’t the only cryptocurrency affected. Other less well-known cryptocurrencies also faced a decrease in value this week. Some experts believe that Bitcoin and digital currencies like it could be experiencing a price bubble that is about to burst. But some experts don’t think the dip in price is cause for concern.

“We’ve seen price falls like this before, and when you look back on them now you’ll see they weren’t part of a bubble, just a. blip,” Michael Jackson, Bitcoin expert and former COO of Skype told Newsweek.

One factor that could have contributed to the price crash is the fact that the cost of sending Bitcoin also reached a record high of more than $50 on December 21st. This could have deterred would-be senders of the currency.

But how does Bitcoin get its value?

Bitcoin is a digital currency that is not owned or regulated by any governing agency. According to the Bitcoin website, there are a limited number of bitcoins in existence. (Don’t confuse Bitcoin with its offshoot, Bitcoin Cash.) The cost of buying a bitcoin is controlled by supply and demand. So the dip in bitcoin value this week means that fewer people are buying Bitcoin now than at the beginning of the week. And there are a few potential reasons for that.

For one, South Korea’s Bitcoin exchange was hacked on December 19th, forcing the exchange to close. This hacking may have discouraged Bitcoin buyers. Another possible reason for the dip in Bitcoin prices could be that Charlie Lee, who founded the currency Litecoin, sold his holdings on December 21st.

For now, it’s hard to say if we’re in the middle of a Bitcoin bubble or not. Bitcoin’s value could continue to climb back up after its sudden drop, or it could continue to plunge. But even at its new “low” value of about $13,000, Bitcoin is a bit out of our budget right now. We think we’ll stick to cash.

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