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The price of Bitcoin is down nearly 30% in two months… What's going on with this digital currency?

by , 05 September 2014

If you watch the price of Bitcoin, you'll have noticed that it's fallen 29% in just two months.

From the beginning of July, Bitcoin was trading on the CoinDesk Bitcoin Price Index at $647.34. By mid-August it had dropped to $460.67.

Today, it's trading at around $488.66.

So why has the price of Bitcoin fallen? Is this digital currency falling out of favour?

Let's take a closer look…

Bitcoin miners and merchants are to blame for the dip in the Bitcoin price

The recent fall in the price of Bitcoin hasn’t resulted in a panic, but it has left some wondering what’s going on.

There hasn’t been any scandals lately about the digital currency, yet the price is ebbing lower, David Zeiler in Money Morning US explains.

The good news is, there does appear to be a reason for the drop in price. Citigroup puts it down to Bitcoin miners and merchants.

The role of the Bitcoin miners in a falling Bitcoin price

Bitcoin miners have been buying better equipment in their race to create more of the digital currency. This more sophisticated equipment means more Bitcoins, which in turn means more profits.

This means a lot of Bitcoin miners are paying huge costs for their mining activities. The equipment is very expensive. So is the electricity to run the equipment.

As a result, some miners have had to sell many of their Bitcoins to cover their costs.

Bitcoin exchange, Coinfloor’s CEO told CoinDesk that miners are now selling 70% to 90% of their new Bitcoins. This is a much higher proportion than last year.

With a rise in the number of Bitcoins mined, this means more Bitcoins selling on the exchanges.

This is resulting in an increase in supply, but not an increase in demand. This is putting downward pressure on the price of Bitcoin.

The role of the merchants in a falling Bitcoin price

The number of merchants accepting Bitcoin continues to grow. This shows that more and more people are using the digital currency.

But when the merchants receive Bitcoin as payment, to avoid extreme volatility in the Bitcoin price, they immediately convert them into currencies, like dollars and rands.

This just adds to the number of Bitcoins selling on the exchanges, fuelling the downward pressure on the Bitcoin price.

These two factors are leading to the Bitcoin price coming under pressure. But it’s only a matter of time before demand catches up. This will help the price recover and rise.

So there you have it, why the price of Bitcoin is down nearly 30% in two months.

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The price of Bitcoin is down nearly 30% in two months… What's going on with this digital currency?
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