The value of bitcoins has been fluctuating like crazy over the last week, experiencing exponential growth in the BTC to USD valuation. There is no way that that can be maintained longterm. What would make it crash?
closed as not constructive by David Perry Apr 10 '13 at 6:20
As it currently stands, this question is not a good fit for our Q&A format. We expect answers to be supported by facts, references, or expertise, but this question will likely solicit debate, arguments, polling, or extended discussion. If you feel that this question can be improved and possibly reopened, visit the help center for guidance. If this question can be reworded to fit the rules in the help center, please edit the question.
If there are no more buyers at price X, then a seller has to lower his price by Y. If there are still no buyers, she will have to lower it more. If there a lot more sellers than there are buyers the price can drop very quickly, just as right now there are a lot more buyers than there are sellers and the price is rising very quickly.
A crash is a bit like an avalanche.
In an avalanche, snow falls and hits other snow; then that snow starts falling too.
People who invest under the greater fool theory will sell as soon as the price goes down. Obviously, when they sell, the price goes down more.
There many possibilities, all of which would lower the demand for BTC and, by extension, its value when compared to worldwide currencies. Off the top of my head I can think of:
- A large swath of BTC being converted to government-backed monies (e.g., USD). This could be as simple as people "cashing in" on prior investments or as compounded as a run on BTC.
- Negative press/hype generates speculative fears
- Technological breakdowns (e.g., an exchange is hacked)
- Mining stops (even if the current state of the protocol does not change, this is not likely for many years.)