Explanation: Double spending or profit ordering, what prompted Bitcoin sales?

Bitcoin fell below $ 30,000 on Thursday, but rose slightly to $ 32,000 on Friday as the cryptocurrency continued to fall freely after a fourfold increase in value last year.

The decline, though, seems to be continuing, even as some important financial players warm up to the digital currency. BlackRock, the world’s largest asset manager, has allowed two of its funds to invest in Bitcoin’s future. Sequoia, a software and engineering company, has given its employees an option to receive payments in Bitcoin.

However, neither of the two positives seems to have boosted Bitcoin’s price. While it’s easier to pinpoint the reason – like in most cases profit ordering – this time it’s hard to tell why the digital currency is on a downward trend.

Sure, Janet Yellen – the Treasury Secretary’s nominee in President Joe Biden’s administration – has publicly denied Bitcoin, the sale doesn’t really match his comments.

Another reason that questioned the ticket’s viability was a trade blog by BitMEX Research which cited an example of successful double spending, which was in fact an unsuccessful attempt. Double spending basically occurs when a sender cheats a recipient to accept a transaction, which is actually sent to the sender itself.

Lucas Nuzzi, co-founder and advisor at Digital Asset Research, took to Twitter to explain what really happened.

Bitcoin was created with the intention of being a currency that did not require any central authority to oversee transactions. Bitcoin is being discussed on blockchain – basically a spreadsheet that records the location of the coin. Transactions that are logged in the blockchain are checked by an unaffiliated third party, often more than once.

Double spending would mean blockchain was manipulated, making its case ineffective. However, as no new coins were added to the system, double spending did not occur. Instead, the same coins from the same digital wallet were registered in two different blocks during a split in the blockchain. This is not a double spend because only one of these transactions was considered valid.

Bitcoin ended 13 percent lower on Thursday – the largest daily drop since a market crash in March 2020. Coindesk reported another example of short-term profit ordering based on the Coinbase exchange in the US. Leading altcoins also report losses in double digits.

In recent weeks, Bitcoin has been weaker when it is daytime in Asia and stronger when it is daytime in the US. This implies a change of pace in two parts of the world.

Nevertheless, it does not mean that US traders are not involved in this correction. Analysts believe they have been trying to trade, predicting lower Asian sessions, John Todaro of cryptocurrency analytics firm TradeBlock told Coinbase.

Analysts cited several reasons that would have driven this sale, such as the unbundling of leverage in Asian markets, concerns about fewer buyers coming to the market, and uncertainty over Biden’s stand on digital currencies. They believed that some institutional investors were using this uncertainty to make a profit. Many of these US and European players entered the market before its steep rise, so the chances of making a profit are higher.

This uncertainty may also appear to some investors, due to the arrival of Biden, Todaro suggested. Yellen has proposed taxing unrealized capital gains, which would affect not only cryptocurrency investors, but any investor, and could have led to a sale, Todaro explained.