Bitcoin Price Dips Closer to $400 Following Network Disruptions

Markets Weekly is a weekly column analyzing price movements in the global digital currency markets, and the technology's use case as an asset class.

While the bitcoin network’s capacity challenges have been generating substantial visibility, the digital currency enjoyed robust trading volume this week, with market participants transacting more than 28m BTC in the seven days through 12:00 UTC on 4th March.

Likewise, bitcoin's price was relatively stable, falling less than 1% heading into 12:00 UTC on Friday. This figure increased to 3.3% as the price deflated to $409 by 23:59 UTC, figures from the CoinDesk USD Bitcoin Price Index (BPI) reveal.

This figure was $10 higher last week when bitcoin traded at $421.01 at 00:00 (UTC) on 26th February. The relatively modest decline was comparable to movements from week before, when bitcoin climbed only 1% after fluctuating between $410 and $450.

Still, the digital currency experienced sharp gyrations this week amid news that the network was exceeding its capacity for transactions, a development that resulted in users paying sometimes substantially higher fees.

Overall, volatility was tight this week, as bitcoin enjoyed gains on 26th February, rising 2.9% to $431.69 by 23:00 (UTC). The currency hit a local peak over the next few hours, reaching $434.14 by 02:00 (UTC) on 27th February.

Bitcoin then dropped within the next 24 hours or so, hitting $422.07 at 01:00 (UTC) on the following day. This represented a 2.8% decline.

This volatility continued, as the digital currency surged to $440.48 by 10:00 (UTC) on 29th February, 4.4% higher than the low of $422.07 bitcoin encountered early the day before. The currency quickly lost some of these gains, depreciating to $431.26 at 07:00 (UTC) on 1st March.

Bitcoin continued to waver between $420 and $440, before reaching $419.56 and then $416.30 at 00:00 (UTC) and 05:00 (UTC) on 3rd March.

For the remainder of the week, the currency largely fluctuated between $415 and $425, before ending under $410.

Blockchain doubts

The price dip could be considered small, however, given the mounting uncertainty surrounding the future of the network.

Recently, bitcoin generated substantial media attention as users faced both longer than average wait times and in some cases, sharply higher fees. As the blocks on the blockchain filled, potentially due to the actions of a single disruptive entity, a backlog of transactions awaiting processing developed.

This problem has persisted as bitcoin enthusiasts are locked in a debate surrounding how to address the steadily deteriorating space.

While one group, Bitcoin Core, has been working on a solution that would increase capacity by reworking how signatures are stored, Bitcoin Classic has published code that would double the transaction capacity of the blocks.

As developers and market observers work toward a solution, users are running into challenges associated with fees.

Because of these challenges, some transactions are going unprocessed, and others are being severely delayed, issues that may have affected overall sentiment even if it did not affect price.

Since exchange users must pay to send bitcoin deposits to exchanges, users who paid fees that were too low may have seen deposits rejected.

Representatives of some exchanges, however, said this may have mainly affected operations at industry businesses, which need to pay extra fees when sending users bitcoin funds in withdrawals.

Charles L. Bovaird II is a financial writer and consultant with strong knowledge of securities markets and investing concepts.

Follow Charles Bovaird on Twitter here.

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