Bitcoin has a bubble, and all cryptos get dragged along with it. The present bubble started in early April, when it became impossible to get USD out of Bitfine

Bitcoin has a bubble, and all cryptos get dragged along with it. The present bubble started in early April, when it became impossible to get USD out of Bitfinex. Being unable to get money for bitcoins on Bitfinex then caused the bitcoin price to go up – from $900 at the start of April to $1900 in mid-May to $2800 on 26 May, by which the bubble was bubbling on its own. The mechanism is: 1. Users have a USD account and a BTC account. They can’t sell their bitcoins and withdraw their cash, but they can buy more bitcoins using their USD account – which contains trapped “dollars” which can’t be used for anything else. Think of it as a Bitfinex “USD” token, not as actual US dollars – Disneyland fun-money which can only be spent inside the theme park. The price goes up. 2. With the higher price on Bitfinex, traders arbitrage by buying coins on an exchange with a lower price and selling them on Bitfinex. (Note that the USD from the sale is stuck on Bitfinex.) This raises the price on the other exchanges. 3. Expectations raise, the price gets mainstream press and more people get into Bitcoin. The bubble inflates. This works precisely because you can’t get your money out (and other exchanges were also having problems with US dollar withdrawals). Users were reluctant to remove their BTC from Bitfinex because the “price” was highest there (even if unrealisable) and because they loved it as a trading platform. The trapped “USD” also gets used to buy other cryptocurrencies – the price of altcoins tends to rise and fall with the price of bitcoins – and this has fueled new Initial Crowdfunding Offerings, as people desperately look for somewhere to put their unspendable “dollars.” Even better: on Bitfinex, you can use BTC as collateral to margin-trade on USD, which you can then use to buy more BTC. Which also drives the price up. And, of course, you can’t get the USD out, so you might as well buy more cryptos with them.