Bitcoin and other digital currencies plunged yesterday, a slide likely to stoke speculation about the durability of the boom in cryptocurrencies.
Bitcoin slumped as much as 8.7 percent, the most since early August, while digital coins, such as ether, also tumbled.
The Bloomberg Galaxy Crypto Index at one point slid more than 6 percent.
Photo: Reuters
“Conditions are very massively overbought and bound for a correction,” said Vijay Ayyar, head of business development with crypto exchange Luno in Singapore. “So I don’t think it’s unusual frankly.”
Even with the retreat, bitcoin has more than doubled this year and until recently was knocking on the door of the record high of US$19,511 set in 2017.
Crypto believers tout purchases by retail investors, institutions and even billionaires, as well as the search for a hedge against US dollar weakness amid the COVID-19 pandemic, as reasons why the boom can last.
Skeptics argue that the cryptocurrency’s famed volatility portends a repeat of what happened three years ago, when a bubble burst spectacularly.
Some see signs of retail investors piling in to chase momentum for fast gains, storing up an inevitable reckoning.
Bitcoin dipped 5.4 percent as of 3:07pm in Tokyo to about US$17,856, while ether was more than 8 percent lower at about US$528.
Concern about the possibility of tighter US cryptorules, as well as profit-taking, help explain yesterday’s price drop across most major digital assets, said Ryan Rabaglia, global head of trading at the OSL brokerage in Hong Kong.
“It’s also not unusual to see a short-term pullback following periods of significant, accelerated gains as traders look to take profits before resetting once volatility subsides,” he said. “Once the dust settles, we’re back to business as usual, with all medium to long-term bullish indicators still in play.”
Proponents of digital assets say the current focus on cryptocurrencies compared with three years ago is different because of growing institutional interest, for instance from the likes of Fidelity Investments and JPMorgan Chase & Co.
Just this week, Van Eck Associates Corp launched a bitcoin exchange-traded note on the Deutsche Boerse Xetra exchange.
Last month, PayPal Holdings Inc said it would allow its customers access to cryptocurrencies.
There is also a buzz around ethereum, the most-actively used blockchain in the world, which is set for a network upgrade that would allow it to process a similar number of transactions as Mastercard Inc and Visa Inc. The shift to the new system could curb the total supply of ether, whose price has quadrupled so far this year.
Ayyar said he expects bitcoin to stabilize and achieve all-time highs, but added that would be followed by a larger drop in the cryptocurrency.
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