Why cryptocurrencies keep bouncing back

Late on Saturday, bitcoin traded near $15,600 according to Coindesk. About 12 hours later it traded around $12,900, a drop of 17%. Since last Monday bitcoin was down about 30%.

The good news is that since Saturday’s low, bitcoin has regained about 11% of its loss since Sunday. Watching the price of bitcoin could give a person whiplash.

If bitcoin and the other cryptocurrencies were traded like equities or commodities or even gold, then we’d expect to see sizeable gains followed by a correction that retraces part of the recent gain. But the cycle is usually longer than a few days or a week.

In late November, CoinMarketCap.com reported than some 1,274 cryptocurrencies had a market cap of $283 bln. A week later the total market cap was $333.82 bln and total market cap rose another $50 bln the week after that.

On December 17, the total market cap of 1,325 cryptocurrencies rose to $590.2 bln and a week later the total had dropped to $566.17 bln. Bitcoin accounts for 57% of the total and Bitcoin Cash accounts for another 9.2%.

For the past seven day, bitcoin prices have dropped nearly 24% while Bitcoin Cash prices have risen more than 54%. Another popular cryptocurrency, Ripple, is up 42% in the last seven days while Ethereum is up just under 7%.

The price of bitcoin and the other cryptocurrencies is volatile because none has an agreed upon fundamental value. A barrel of oil or an ounce of gold has a price backed by a physical asset. When there is no such asset, something like bitcoin is worth what people think it’s worth.