Bitcoin’s price has crashed. There is simply no other way to describe the -40% price decline that occurred in the first two weeks of 2015. It’s dismal, it’s disappointing and it’s a normal part of a free and open market. While Bitcoin is a transformative technology, it is not immune to the greed and fear that permeate every financial market.

Speculating on the true intentions of buyers and sellers in any market is a fool’s errand, but we can identify some catalysts. In this case, there appears to be three events that could be to blame for the price crash: BitStamp, CEX.io, and Russia.

BitStamp

BitStamp is one of the largest bitcoin exchanges and it was hacked last week. Before the exchange realized what was going on it lost over $5m in bitcoins to the hackers. To its credit, BitStamp shut down operations and made every investor whole before re-opening with vastly improved security. Nonetheless, the blow to confidence in undeniable and its seems plausible that some investors were spooked and liquidated holdings.

CEX.IO

CEX is one of the largest mining operations in the world - it operates the GHash mining pool and sells mining contracts via the cloud - in the digital currency industry this is called ‘cloud mining’. The recent price slump has made these mining contracts unprofitable and CEX has shut down these mining operations. It’s likely that owners of these contracts have liquidated in favor of fiat currency - weighing on the price of bitcoin. Coindesk has an excellent post on the subject here.

Russia

Russia has threatened to make Bitcoin illegal for the better part of 2014. However, it had not taken any action until recently. This lack of action made bitcoin a hot investment as the Russian currency collapsed. Many speculated that wealthy Russians were using bitcoin as a way to withdraw money from Russia. In the last few days, Russia has begun to ban Bitcoin websites. For those interested in reading more, Engadget has a good post here.

Negative Feedback Loop

Unfortunately, these catalysts are conspiring to create negative feedback loop - the falling price is making more mining operations unprofitable, which in turn is resulting in more liquidation. This phenomenon is not unusual in markets and identifying these feedback loops can be quite profitable. Until another catalyst forms and breaks the loop the price of bitcoin will remain depressed.

I don’t know when or what will break the loop, but I do know that this will not be the last time it occurs. There are few guarantees in financial markets, but I am sure that bitcoin will experience irrational bubbles, crashes and feed back loops (positive and negative). This fact has nothing to do with bitcoin the currency or technology; it has everything to do with human nature.

Like any market, Bitcoin is an open natural system and is subject to the panic and euphoria that engulf all financial markets from time to time. It’s dismal, it’s depressing and…it’s normal.