A couple of people asked me this morning why Bitcoin went down so much over the past couple of days (it went down to $500 before buyers came back into the market). My take is that it’s a combination of a couple of factors:

1. New merchants such as Dell now accept bitcoin, but sell the coins the moment someone buys a product. Result: supply up, but no change in demand, so lower price
2. Bitcoin miners mine at a loss at current prices, so they wait for a price increase. However, they can’t wait too long before paying their bills, so they start selling as well when prices are in a downward trend.
3. The successful Ethereum crowdsale means that these old coins will hit the market as well (I don’t think many people bought BTC just to invest in Ethereum), again increasing supply and lower prices
4. These lower prices led to massive margin calls on Bitfinex, at one point 9000 coins were sold in 15 min on Bifinex, leading to a sharp decrease in prices and additional margin calls.

Because the order book is so thin these (small) increases in supply lead to lower prices right away. If you have some extra cash laying around this seems like a good time to buy (although according to technical analysis, if $500 is broken the price may go down to the $430 resistance level). What will happen next is that short sellers take profits and start buying again.

Still waiting for the first Wall Street ETF to be approved, at that point demand will go up a lot, which should lead to a huge increase in price. But that may still be a couple of months away, the SEC is so slow…