Bitcoin is crashing – and selling it is not easy

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Bitcoin 101 for Canadians: a beginner’s guide to the digital currency
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Bitcoin dropped below US $13,000 ($16,600) after approaching US $20,000 on Sunday, in a precipitous plunge that may mark the end of this year’s rally for the cryptocurrency.

READ MORE: Bitcoin’s value plunges, heads for worst week since 2013

“People are cashing out,” said David Mondrus, chief executive of Trive, a blockchain-based research platform. Investors are exchanging their digital tokens for old-fashioned money for bonuses, to pay for Christmas gifts and realize capital gains before the end of the tax year, he told Global News.

The biggest and best-known cryptocurrency had seen a staggering twentyfold increase since the start of the year, climbing from less than US $1,000 to as high as US $19,666 on the Luxembourg-based Bitstamp exchange. But on Friday it has lost a third of its value since nearing its peak on Sunday.

READ MORE: Bitcoin for Canadians: Where to buy it – and the taxes you’ll pay

Mondrus, for his part, seems unconcerned about the crash.

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“It’s kind of healthy, actually,” he said, adding that investors would return to buy Bitcoin – at cheaper prices – next year.

Although he said it’s hard to predict when the virtual currency might rebound, Mondrus remained confident that it would resume its long-run upward march.

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Bitcoin: hot investment opportunity or looming bubble?

Still, Bitcoin holders who can’t stomach the latest dive may find it tricky to divest themselves of their crypto holdings, Mondrus acknowledged.

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For example, cryptocurrency buy-and-sell services like U.S. based Coinbase, which allows Canadians to buy bitcoins with their credit card, impose limits on both buy and sell transactions.

“Due to the rapidly changing price of digital currencies, some customers may not have sell limits that are sufficient relative to the value of [the] total digital currency they are storing on Coinbase,” the company said on its blog.
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And whenever Bitcoin experiences high volatility – whether it’s soaring or diving – cryptocurrency exchanges tend to struggle to handle user demand, which leads to technical glitches and delays.

“Despite the sizable and ongoing increases in our technical infrastructure and engineering staff, we wanted to remind customers that access to Coinbase services may become degraded or unavailable during times of significant volatility or volume. This could result in the inability to buy or sell for periods of time,” Coinbase recently warned.

READ MORE: Winklevoss twins are now Bitcoin billionaires. What that means for the rest of us

When they do work, though, buy-and-sell services generally allow for instant or very fast transactions.

Selling Bitcoins without one such intermediary right now is even more challenging.

The “Bitcoin blockchain is full, that is an absolute technical problem,” said Mondrus.

Every Bitcoin transaction has to be verified and added to the blockchain, the public ledger that underpins the currency, which takes time and an inordinate amount of computing power. The process is handled by so-called miners, who are rewarded with a set amount of new bitcoins for their labour but also generally demand a processing fee for each transaction.

Miners also get to choose which transactions to process first and tend to prioritize those with larger fees. Currently, small-fee transactions aren’t being processed at all, with the cryptocurrency being returned to the sender after some time, Mondrus told Global News.

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This means users face long waiting times to clear the transaction backlog. It also means that retail investors who own only a small amount of bitcoins might have to cede a significant share of their holdings as a fee just to be able to sell off the stuff.

Those stuck with unwanted bitcoins may take some comfort in the knowledge that Bitcoin is not new to free falls. This week’s 30-percent dive will be Bitcoin’s worst since only 2013, according to Reuters. For comparison, when the S&P 500 dropped 9 per cent at the height of the financial crisis on Oct. 15, 2008, it was its second-worst day since the 1940s.

– With files from Reuters

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