Bitcoin Passing $4,400 After Price Slump

If you own bitcoin, it may feel like a rollercoaster ride. Just two weeks after bitcoin slipped under $3,000, the world's most popular cryptocurrency has climbed over $4,400. It showcases both a record-setting and volatile 2017 — nearly eight years after bitcoin's creation by little-known Satoshi Nakamoto. (The combined cryptocurrency market capitalization, which includes ether, bitcoin cash and others, is currently over $137 billion after dipping under $100 billion earlier last month.)

Back in mid-July, the electronic coin dipped under $2,000 before rebounding to over $4,500 in late August. That's a staggering 130 percent increase in just five weeks. By August 17, Bitcoin's market capitalization of $74 billion exceeded that of Netflix ($72.7 billion) and PayPal ($71.9 billion).

Factors affecting bitcoin's recent volatility

So why the price slump of $2,981 as of September 15?

First, traders and speculators are taking advantage of BTC's price swings by selling high and buying low, which enables them to lock in short-term profits while continuing to bet on long-term price increases. "The history of Bitcoin has shown that every price slump is temporary," says Panagiotis Pollis, founder of Bitfortip, an advice site that compensates in bitcoins. "Even the moon is not the limit."

The cryptocurrency market can also be affected by negative media coverage. Earlier this month, JPMorgan chief executive Jamie Dimon momentarily spooked the market by trashing the digital currency. Bitcoin is "a fraud," he said at a conference, using strong words to contradict bitcoin's buoyant popularity. "You can't have a business where people can invent a currency out of thin air and think that people who are buying it are really smart." But a couple of hours later, Dimon revealed that his own daughter recently purchased some bitcoin.

Bitcoin facing more regulatory scrutiny

September's price slump also reflects regulatory actions taken against bitcoin and its emerging ecosystem of exchanges and applications. In early September, China's government banned initial coin offerings (ICOs). And bitcoin exchanges in China, such as ViaBTC and Yunbi, were recently shut down by authorities. Not only that, the Bank of Russia may soon be following China's lead in restricting cryptocurrency's legitimacyin its national banking system.

In the U.S., the Securities and Exchange Commission (SEC) is scrutinizing ICOs and warning the public against scams. It's tarnishing the crypto market as a whole even though bitcoin is uninvolved in these separate fundraising campaigns.

A component of the market is nervousness regarding bitcoin's sustainability as heretofore an unregulated instrument and store of value. It's unbacked by any government or central bank, and technically, the "electronic coin" consists nothing more than a series of digital signatures published on a blockchain. Yet it has value because users, transaction processors and investors collectively agree — or perceive — that bitcoin has value.

How governments and central banks react to bitcoin may vary widely based on local customs and political climate. But it's becoming clear that bitcoin is a threat to the revenue streams of taxing authorities and traditional banks. Will the regulatory environment suddenly turn draconian? It's a risk that investors may want to consider.