The cryptocurrency Cassandras are starting to look right.
The sector has lost about a third of its market value since peaking in early last month, pushing it into what traditional equity market analysts label as a bear market.
Bitcoin, the largest of the digital currencies, is down about 20 percent from its peak of US$3,000, reached on June 12. Smaller rivals such as ethereum and ripple are getting hit even harder.
Photo: Bloomberg
“When we look for signs of excess in the market, I look at bitcoin and to me that looks pretty scary,” BlackRock Inc global chief investment strategist Richard Turnill said during a midyear outlook presentation in New York on Tuesday.
Whether the virtual currencies were caught up in an asset-price bubble was a subject of debate as the market capitalization of the sector soared this year, raising skepticism from pundits including tech billionaire Mark Cuban.
Ripple chief executive officer Brad Garlinghouse, whose money-transfer company is tied to the third-largest cryptocurrency by market value, said he was not convinced.
“I would be surprised if there was a major crash,” Garlinghouse said in an interview at Bloomberg’s New York headquarters on Monday. “Could we see digital assets continue to double or triple or quadruple from where we are today? That wouldn’t surprise me at all.”
Digital coins are currently worth around US$80 billion, down from a market capitalization of US$100 billion on Friday and US$115 billion on June 14, according to data from Coinmarketcap.com.
This week’s slump coincides with initial hearings in the trial of the former head of Mt. Gox, the bankrupt Japan-based bitcoin exchange that imploded in 2014 after losing hundreds of millions of US dollars’ worth of bitcoin.
Former Mt. Gox CEO Mark Karpeles on Tuesday in Tokyo pleaded not guilty to charges of embezzlement and inflating corporate financial accounts.
The turbulence might be far from over, too, as rival bitcoin enthusiasts are set to adopt two competing software updates at the end of the month. This has raised the possibility that bitcoin could split in two, an unprecedented event that would send shockwaves through the market.
Volatility is nothing new for cryptocurrency buyers, who have faced losses in recent months as exchanges grapple with outages and poor performance, struggling to keep up with the volume surge that has swept the market amid speculation about the potential for widespread adoption of virtual assets and blockchain technology.
“It is easy to look at the appreciation that we have seen this year and conclude that we are witnessing a bubble,” Genesis Global Trading vice president of sales and trading Martin Garcia said. “While I understand that the prices we are seeing now are more than a little frothy, I think that we are in the very early stages of the development of an entirely new asset class.”?
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